Q4 2022 StepStone Group Inc Earnings Call

Greetings and welcome to the.

Step stone fiscal fourth quarter 2022 earnings conference call.

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It is now my pleasure to introduce your host Seth Weiss head of Investor Relations. Thank you Seth you may begin.

Thank you and good afternoon, everyone. Joining me on the call today are Scott Hart, Chief Executive Officer, Jason Mann, President and co Chief Operating Officer, Mike Mccabe head of strategy, and Johnny Randall Chief Financial Officer.

During our prepared remarks, we will be referring to a presentation, which is available on our investor relations website at shareholders that steps down group dotcom.

Before we begin I'd like to remind everyone that this conference call as well as the presentation contains certain forward looking statements regarding.

Regarding the company's expected operating and financial performance for future periods.

Forward looking statements reflect management's current plans estimates and expectations and are inherently uncertain and are subject to various risks uncertainties and assumptions.

Actual results for future periods may differ materially from those expressed or implied by these forward looking statements due to a number of risks or other factors that are described in the risk factors section of Stepson's. Most recent 10-K.

These forward looking statements are made only as of today and except as required we undertake no obligation to update or revise any of them in.

In addition, today's presentation contains references to non-GAAP financial measures.

Reconciliations to the most directly comparable GAAP financial measures are included in our earnings release, our presentation and our filings with the SEC.

Turning to our financial results for the fourth quarter of fiscal 2022.

We reported GAAP net income of $103.6 million.

GAAP net income attributable to steps down group, Inc was $41.8 million.

We generated fee related earnings up $35 $9 million adjusted net income of $43.7 million and adjusted net income per share up 38 cents.

The quarter reflected retroactive fees, resulting from an interim closing step stones private equity co investment fund that contributed $3 $4 million to revenue and $3.0 million to fee related earnings and pre tax adjusted net income.

This compares to retroactive fees in the fourth quarter of fiscal 2021 that contributed zero point $8 million to revenue fee related earnings and pre tax adjusted net income I.

I'd now like to turn the call over to Stepson's, Chief Executive Officer, Scott Hart.

Thank you Seth and good afternoon, everyone.

2022 was a record year for steps down.

We generated our strongest year ever for fee related revenue total adjusted revenue fee related earnings and adjusted net income per share.

Our results were driven by record contributions of fee, earning assets robust investment performance and expanding operating margins.

For the year ending March 31st we increased fee, earning assets by over $23 billion 12 billion of which we generated excluding the acquisition of Green spring ending the year with $75 billion of fee, earning AUM.

We are encouraged by both the level of growth in the balance of contributions between asset classes with over 60% of the year's organic growth coming from a combination of infrastructure real estate and private debt and 40% coming from private equity including venture capital.

Over the last six months, a confluence of factors, including increasing inflation rising interest rates and geopolitical uncertainty create a challenging market backdrop.

However, our confidence in our ability to grow fee, earning assets and fee related earnings remained strong.

That sounds ability to perform through market cycles is a reflection of a platform diversified by geography asset class and strategy all supported by the highest caliber professionals in the industry.

Oh private market valuations are not immune to market pressures the long term nature of our investments and of our clients' capital commitments allow steps doing to invest through economic cycles and take advantage of dislocations to deliver long term outperformance.

Importantly, that's known as experienced in operating and investing through turbulent markets. Our firm was founded in 2007, just prior to the onset of the global financial crisis, and we have managed through previous periods of market volatility, including the beginning of Covid.

During periods of market turbulence that our clients rely on us most.

We are in a unique position to construct diversified private market portfolios. They can weather a wide range of macro conditions, given the breath of our strategies expansive geographic reach and depth of extra Pete expertise across asset classes.

The power of our platform was on full display over the last quarter.

In infrastructure, we generated our strongest quarter ever of fee, earning asset growth we.

We have seen significant interest in inflation linked investments such as regulated utilities in certain transportation assets.

Furthermore, the rise in energy cost has accelerated trends related to energy transition and create a compelling opportunities for investment.

While infrastructure was clearly a standout this quarter, we're seeing positive trends across all four asset classes.

Private debt had been our fastest growing asset class over the last three years with fee, earning assets growing at a nearly 40% annualized pace.

Characteristics that have made private debt desirable such as resilient yields low volatility and strong credit performance remain true today.

We're also seeing increasing demand for floating rate debt securities the centerpiece of our private debt strategy, given the rising rate environment.

Subsequent to quarter end, we completed the final close on our second senior corporate lending fund or S. C. L. Two which raised the total of $1.3 billion.

We also held a final close on our first credit opportunities fund or scoff, one raising over $600 million.

These two fund closing showcase the spectrum of our private debt offerings with S. E. L. Two targeting consistent returns through senior secured first lien debt and scoff, one targeting higher returning opportunistic and distressed assets.

Those bonds were met with strong demand in both secured commitments above our targets.

Moving to real estate fundamental demand across most sectors remained strong the downward pressure on asset prices from rising interest rates, it's accompanied by improving rents and increased occupancy rates, which serve as positive offsets.

The combination of dislocations from the pandemic along with capital markets volatility has introduced unique opportunities across special situations recapitalization and secondaries, all areas, where we are especially strong.

Deployment of real estate funds has picked up significantly in the last year has continued into our fiscal 2023 and should spur near term re up in fund raising activity.

And finally momentum in private equity remains strong we generated more than $4 billion of organic fee, earning asset growth for the full year and we've been quite active to start the new fiscal year with several final and interim fund closings in the first two months of the quarter alone.

Since the end of the fiscal year, we've held our final closing on our venture capital Secondaries Fund, which closed with total commitments of $2 $6 billion.

We believe this is currently the largest dedicated venture capital Secondaries fund in the market.

We also executed our first close of over $1 billion on our private equity Secondaries fund.

We expect our private equity secondaries fund to become active in keeping later in the fiscal year.

We believe these two secondary funds position us extremely well for the current environment.

Many Lps are taking a more active approach to portfolio management as market volatility has shifted portfolio weightings, while fund distributions have slowed we.

We believe this will create significant volume in the secondaries market is L. P seek liquidity.

We're also nearing final closings for our flagship Cohen Best Fund, which has closed on over $2 $3 billion to date.

Our venture capital opportunities fund, which is closed on over $800 million and our venture capital Micro fund.

In total we have closed on more than $2 $5 billion of commingled funds. Since March 31st would you will see in our next fiscal quarter's results split between our fee, earning an unemployed fee, earning asset balances.

I would like to quickly touch on the Green Spring acquisition, which closed in September of 2021.

Integration of Green spring is progressing well and as expected we are seeing a number of benefits as a result of the combined platform.

Our access to deal flow and differentiated due diligence insights has never been stronger.

As you've just heard fundraising across our venture capital and growth equity commingled funds continues to be very successful.

And we're also having multiple discussions with clients regarding venture capital dedicated separate accounts, combining the investment prowess to be green spring team with the emphasis on customization for which steps down has developed a reputation.

As we head into fiscal 2023, the demand for private markets remain strong and cycle tested investors understand some of the best private market investments are made during periods of dislocation.

However, the current fundraising environment can be challenging and some lps find themselves at or above their target allocations and many managers have returned to market with larger funds than before and faster than expected.

It steps down to view this is likely to result in a fundraising market. It is bifurcated between the haves and have nots at will.

Or managers that have been disciplined in their deployment have differentiated strategies and have generated strong returns across market cycles.

<unk> selection is particularly important in this environment and step stone is uniquely qualified to help our clients navigate an increasingly crowded field.

Furthermore, our ability to invest and underwrite alongside the best Gpus in the World allows us to access attractive co investment and secondary investment opportunities.

Turning to our results on slide five we generated $43 $7 million and adjusted net income for the quarter or <unk> 38 per share up 52% from the prior fiscal year's fourth quarter on a per share basis.

We generated fee related earnings of $35 9 million up 71% from the prior year quarter as we produced strong organic growth and benefited from the Green Spring acquisition.

Accounting for the increase in our shares outstanding we grew fee related earnings per share by 47%.

We declared a dividend of <unk> 20 per share a 33% increase over our prior dividend, Mike will speak to our capital management priorities in more detail.

Before turning the call over to Mike I want to highlight our annual ESG report, which we issued earlier this month.

We believe conducting our business with consideration of ESG topics is key.

We are proud to be a carbon neutral company and are committed to advancing diversity equity and inclusion through our hiring promotion talent development and partnership with outside organisations and nonprofits.

On the investment and client side, 100% of our investments are diligence with consideration of ESG matters. A practice, we are very proud to have implemented across all our asset classes and global offices, we are working to Cascade. These practices to our growing global community of GPS.

Yes, she is clearly an evolving and growing topic within the private markets.

We believe we are well positioned to provide solutions for our Lps needs and look forward to expanding our engagement with our clients General partners portfolio companies' shareholders and other stakeholders.

I'll now turn the call over to Mike Mckenney.

Thanks Scott.

Turning to slide seven we generated approximately $21 billion of gross AUM inflows in the last 12 months with 5 billion coming from a co mingled funds and 16 billion from separately managed accounts.

Slide eight shows our fee, earning AUM by structure and asset class.

For the quarter fee, earning assets grew organically by $4 billion.

In separately managed accounts, we added $3 7 billion to our fee, earning asset balance driven by several significant re ups and expansions in infrastructure.

And co mingled funds, we generated over $1 billion in gross additions however.

However, we also returned capital to our limited partners as we executed on opportunistic sales of secondary funds that were near the tail end of their lives.

These sales make up the majority of the $800 million of fee, earning asset distributions you see on the fee, earning AUM walk on page 18 of the earnings presentation.

As a result co mingled funds netted approximately $300 million in fee, earning asset growth.

And as Scott mentioned, we've already enjoyed sizable co mingled fund closings in the first fiscal quarter of 2023.

We continue to grow our evergreen product called <unk> Prime our private markets fun for accredited investors.

We crossed $550 million of assets in Bay and have delivered a 77% total return since inception.

We continue to make progress across all distribution channels.

Looking over the last 12 months and excluding the impact from acquisitions, we have organically grown fee, earning assets by approximately $12 billion, our largest year ever of net fee, earning asset growth.

As we've highlighted in the past this growth is predominantly fueled by markets outside of North America.

This growth also comes on top of a very strong year of realizations, which enabled us to return over $7 billion of capital to our limited partners, which is by far our largest 12 month period of capital distributions on record.

But given the market backdrop, we could not be more thrilled with our level of unemployed fee, earning capital, which stands at $17 billion near our highest balance.

Dry powder is more valuable than ever and we intend to utilize the full breadth and depth of our platform to take advantage of a rapidly changing investment environment.

Slide nine shows the evolution of our management and advisory fees, where we are generating $3 55 per share in revenues over the last 12 months, representing a 25% annual growth rate since fiscal year 2018.

We generated a blended management fee rate of 52 basis points, which remained stable compared to the last three years.

Now before transitioning to Johnny I would like to spend a minute on capital management.

Our business model is highly capital efficient and generates significant cash flow.

Our top priorities for cash are to drive continued growth and long term profitability, while supporting the common dividend.

As Scott mentioned the board has declared a dividend of <unk> 20 per share for the quarter up nearly 200% from our initial seven cent dividend in February of 2021.

We can comfortably support this higher dividend given the consistency of our cash flow and strong growth in operating results.

Since going public less than two years ago, we have growing trailing 12 month fee related earnings per share by 66%.

While nearly tripling, our net accrued carry and investments.

We will continue to invest in organic growth, which includes development of our proprietary and differentiated technology.

Out of our retail team and an investment in a broad geographic footprint that can best serve developed and growing markets.

And we are being thoughtful about other opportunistic uses of funds including potential M&A.

Since founding the firm in 2007, we have complemented organic growth with highly synergistic and accretive acquisitions.

Our experience positions us incredibly well to take advantage of compelling opportunities as we enter a new market cycle.

And with that I'd like to turn the call over to Jonny Randall to discuss our financial results in more detail.

Thank you Mike I'd like to turn your attention to slide 11, the touch on a few of our financial highlights.

For the quarter, we earned a record management and advisory fees of $112 million driven primarily by continued growth in fee, earning assets. Our FRE margin for the quarter was 32% up more than 400 basis points year over year, we benefited from retroactive fees in the quarter, which contributed 180 basis points to the FRE margin.

Sequentially, our FRE margin was down 260 basis points from the fiscal third quarter, driven by higher expenses com.

Compensation was up due to higher head count bonus accruals and the timing of payroll taxes and benefits, which are seasonally highest in our fiscal fourth quarter.

Also recall that we benefited from bonus accrual adjustments in the fiscal third quarter, making a sequential comparison a bit more difficult.

Gross realized performance and incentive fees were $32 9 million for the quarter, which were up 31% year over year, but are down 51% sequentially from the record performances in our fiscal third quarter.

For the full year, we generated over $120 million of net realized performance and incentive fees, which is our highest year ever driven by strong underlying investment performance and a very supportive environment for exits and realizations through most of the fiscal year.

Monetization activity has slowed since it started this calendar year as IPO activity and broader transaction volume has moderated.

Net realized performance fees were strong at $28 million as a portion of the realized performance fees. In this quarter came from investment programs that did not have associated performance fee compensation.

A quick note on a few other P&L items, which you can find on our non-GAAP financial results on page 17 of the presentation.

Income attributable to Noncontrolling interests was approximately $9 million, which is up nearly 90% year over year.

As a reminder, we owned 100% of our private equity businesses, but roughly half of the other asset classes.

Increase in NCI is evidence of the strong growth, we are generating in infrastructure private debt and real estate.

Most of the earnings in these asset classes will be fee related, but we did generate a small amount of performance fees. This quarter. We're now showing a breakout of fee related and non fee related earnings within the Noncontrolling interest line in order to assist you with modeling.

Noncore expenses were up in the quarter, which relate to the accrual of potential Green spring acquisition earn outs, which we outlined when we announced the deal the growth in venture business is progressing well. So we currently anticipate that this earn out will continue to accrue periodically over the next three years as revenue for Green spring approaches levels needed to achieve the earn out.

Payment.

As a reminder, noncore expenses did not impact fee related earnings or adjusted net income.

Finally, our tax rate reflected in Eni was 22, 3% for the quarter and 22, 5% for the full year.

We anticipate reflecting a 22, 3% tax rate related to Eni in fiscal 2023 based on the blended statutory tax rate derived from our expected state apportionment of income.

Moving to slide 12, we grew overall adjusted revenue per share by 52% in the fiscal year by 33% compounded annual growth rate over the longer term.

Our revenue growth is driven by consistent growth in fee, earning assets and has been bolstered by the recent period of very strong realized performance fees.

Shifting to our profitability on slide 13, we grew fee related earnings per share by 25% for the full year. As a reminder, we earned a high level of retroactive fees in fiscal 2021 through fiscal 2022 year to date growth comes against a high comparison.

Excluding the impact of retro fees FRE per share would have grown by 32% for the full year.

Over the longer term, we have achieved a CAGR of 48% and fee related earnings per share since fiscal 2018.

Turning to Eni, we grew our adjusted net income per share by 85% for the full year by 45% over the longer term, reflecting both continued increases in FRE and strong realized net performance fees.

Moving to the balance sheet on slide 14, gross accrued carry continues to increase driven by strong underlying investment performance ending the quarter at $1 5 billion. This is up 10% from the prior quarter and up 65% over the last 12 months.

Our own investment portfolio ended the quarter at $107 million up 8% from the prior quarter and up 44% over the same quarter in the prior year, reflecting both market appreciation and net contribution.

Unfunded commitments to these programs were 68 million as of quarter end.

As a reminder, accrued carry in our investment portfolio are reported on a one quarter lag so balances reflect performance through December 31st.

We manage a large pool of over 55 billion of performance fee eligible capital. This capital is widely diversified across multiple vintage years and over 150 programs as of March 31.

69% of our unrealized carry is tied to programs with vintages of 2017 or earlier, which means that these programs are largely out of their investment periods and entered harvest mode 60.

62% of this unrealized carry sourced from vehicles with deal by deal waterfalls, meaning realized carry may be payable at the time of investment exit.

This concludes our prepared remarks, I'll now turn it back over to the operator to open the line for any questions.

Thank you.

And ladies and gentlemen at this time, we will conduct a question and answer session. If.

If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press star followed by the number two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys once again asset.

<unk> Press Star one on your telephone keypad.

Our first question comes from Ken Worthington with J P. Morgan. Please state your question.

Hi, good afternoon, thanks for taking my questions.

Maybe first to dig into green spring emerging growth appears to have.

Changed in the opinion of many investors and maybe some more concerns have grown around the prospects for emerging growths investments maybe can you start by talking about the interest level that you're seeing in venture capital and to any extent that the dialogue, you're having with green spring investors has or has not.

<unk> in recent months and then along those lines what are the conviction levels that you have and your ability to raise bigger funds for the Greens Green spring products that you guys have in market currently.

Sure. Thanks, Ken for the question this is Scott.

So look clearly one of the most significant thing is we've seen happened over the last several months driven by inflation and rising rates has been the repricing of of long dated cash burning growth in technology companies and it's really caused a shift in mentality from the sort of growth at all costs.

Mentality to really a focus on more sustainable growth and finding a clear path to profitability, but is that is that as we think about how this impacts our business I.

And then we really kind of break it down into the fund raising impact deployment as well as current performance and so on the fundraising side look you heard from US bad during this past quarter as well as a in the quarter to date period here. It just started the new fiscal year, we've continued to see quite a bit of momentum.

Fund raising with the final close on our venture secondaries bond as well as the interim closings on our direct opportunities and micro funds now clearly we expect the year ahead to be more challenging fund raising environment than the year before but as we think about the deep conversations we are having with with clients today I think we have been.

Suddenly surprise bad they're actually quite a few investors that are just now looking to get access to the venture capital market and if anything during those conversations what we hear is that the one thing holding them back over the last year. A couple of years had been the valuation environment. So they view this as a more appropriate.

Entry point and so.

We certainly think that fund raising we will be more challenging maybe slowed down but we are we are certainly encouraged by the level of interest that we see and as we think about for example, the deployment environment again clearly their expected not unlike the broader private equity market, we will see things moderate in the near term here.

Given bid ask spreads you know given that most companies that don't have to fund raised today will not them, but again I think we will be selective in our in our deployment and I actually feel pretty good about having a couple of fresh pools of capital to invest into to the avaya environment. Here. So we will have to be patient.

We'll feel good about the the the fundraising that we completed lately here.

Awesome. Thank you and then just maybe on carry the performance fee.

Opposition payout ratio seemed unusually low this quarter and then I guess separately the ratio of carried to distributions also fell and I think Mike you had some comments here Johnny you had some common share but help me just tie. These together how did the nature of carry this quarter.

Sort of impact.

Or result from these other items that I highlighted.

Oh, Hi, Ken sure this is Johnny.

Question, I'll start and the others can add.

Just in terms of the compensation question.

I know, we've mentioned that at various times before we do have some relationships that are you know there is carry tied to those programs that did not have an associated compensation.

Just happened to be the quarter, where some of those had realized carry that came through so it is a nuance on a normal normal quarter, you'll see what you've seen before which had run somewhere in the 50 ish percent range. So just an unusual quarter based on time.

As far as the impact of realizations on fee, earning assets.

It's sort of a quarter lag in terms of the fee, earning basis that we report is what paid fees in the quarter our realized carry happens during the quarter Theres somebody who sees associated with that but we.

We have a lot of carry that comes from vehicles that are paid on committed not to see a correlation or correlating drop inferior assets.

Right.

No.

Yep, great. Thank you very much.

Thank you. Our next question comes from Michael Cyprus with Morgan Stanley . Please state your question.

Great. Thanks, so much good afternoon wanted to ask about the the retail evergreen product. The converse of strategy is helping you can give us an update on the distribution build out there. How many platforms are you guys on today and where would you like that to be 12 months from now maybe you could talk about some of the action items.

You guys are looking to implement their on building that out over the next 12 months or so.

Thanks, Mike Jason here.

So in terms of the build out of the distribution platform think about the same four pillars that we've talked about historically that's international that's R. I a here in the U S. That's IBD here in the U S and that's the wires.

<unk> has been strong across all four of those pillars and they're all they're all important and as it relates to just the sheer number we're up around 110 platforms today here in the U S across our I E. In IBD, we had our very first allocations from a wire here in the U S. This quarter as well so.

There and the international build out continues we've added staff in Europe too on the continent to continue our international push and ER and conversations continue and rest of world as well.

Go forward you know well.

You'll see more investment in the team it's up around 40 folks now today and.

We will see more investment in the non U S team as well as here in the U S. As we continue to penetrate.

The various of those for those four pillars.

The syndicate build.

That we'd like to see.

I think we'd like to see continued progress across all four of those.

Pillars are averaging about 45 million Bucks a month over the last.

Five or six months here and.

And we'd expect that to kind of grow.

Hum.

Over the next step.

Yeah.

Great and just a follow up question I'm, just thinking about product be curious to hear your latest perspective, and how you're thinking about expanding the product portfolio. Both on the retail side, but also more broadly including institutional I heard you mention.

Perhaps a venture SMA leveraging the green spring investment our team there, but just broadly how are you thinking about expanding the product portfolio over the next year or two.

Okay, maybe I'll start on the retail specifically.

Specifically and then kick it over to Scott.

On the retail well see prime is the first not the last one that we're gonna be raising that's purpose built for the retail channel and we've said that before we've got a couple of products in development now and we should have.

Something to talk about in the near future on on that front.

As the <unk> team builds out as well we are starting to utilize their services to think about retail distribution of our institutional funds as well.

So there they are providing a lot of operating leverage to our.

Regular business development sales motion, but I'll kick it over to Scott now for the for the latter part of your question sure.

Sure I think on the institutional side, the debenture capital separate accounts that I was referencing look it's been a normal course part of our business I guess the good news is that we now have examples posted green spring acquisition of Boes step stone legacy clients that have made new venture capital commitments and legacy <unk>.

<unk> clients that have now made commitments to step stone products. So so not only are thinking about new strategies, but also executing on some of the cross selling opportunities that exist. There as we think about other other strategies. We referenced this in the past, but you continued.

Build out across certain other asset classes as we think about the evolving for example, co investment in secondary markets in in areas like infrastructure and our private debt business continually looking to expand expand their deal flow and really do either diversify that deal flow or offer clients the ability to generate different at risk return.

So I think those are some of the key things that we're thinking about these would be maybe in the form of separate accounts. These may be in the form of commingled funds depending on.

The appetite from clients in the targeted at investors.

Great. Thank you.

Thanks, and a reminder to ask a question press star one.

Our next question comes from Adam Beatty with UBS. Please state your question.

Alright, Thank you and good afternoon I wanted to follow up on the wealth management channel and specifically the wire House segment, you mentioned getting some allocations from a certain partner there.

If you could talk a little bit about the dynamics of winning that business getting that approval and then what you're going to be doing to kind of ramp up the volume. There. What do you think are the critical success factors matter.

Adam it's going to vary platform to platform and whether that's one of the the roll up or as one of the IBD are or the wires are the approval process.

It varies pretty dramatically platform to platform.

But I was wondering if it went to wire House example, specifically.

Yeah, so without calling out which wire and how the different banking platforms work.

There's a.

<unk> process around the product, there's a diligence process, there's an operational due diligence process.

And then it's a matter of you know.

Finding the slot on the calendar when they're ready to launch with you.

This has been a multi month.

In fact, probably more like 12 months courtship.

With this particular platform and we're doing the same thing with all the wires.

Kind of concurrently so in terms of the ramp then there's an education process with the FAA is theres a kickoff call you.

And start sending out kits to the various phases. They request them and that can include education with the individual clients or just with the Fas that kind of varies a bit.

As well and and as that phase worked through the book, you'll see a you'll see a pick up in monthly flows.

Excellent. Thank you Jason appreciate your patience with the detailed question.

And then turning to it was a phrase that Scott used just about the haves and have nots within sort of the you know the.

The G. P University you guys deal with just wondering kind of what you're seeing in terms of the state of play there and you know whether whether there's beginning to be some bifurcation or or it's something that you're just expecting based on past experience.

I think at this stage. It's it's you know something that we expect based on past experience I think you've heard from us over the last few quarters I know you've heard from others as well.

A crowded fund raising environment. It is today when you combine that with the denominator effect, which is not necessarily impacting all Lps, but certainly impacting some what you find is that your some lps will need to be more selective.

They continue to allocate to the private markets and so the different options available are one can cut back their allocations. They can be more selective about what groups to back or you know maybe you can pursue a secondary sales as well, but I think in that type of environment and again combined with the crowded fun.

Raising market that we see today, we would expect to see groups very selective at again focused on.

Not only E. G. P. As you have been disciplined and generate strong returns through cycles, but if it's been disciplined from a pacing standpoint, and who have strategies that are well suited for <unk> for the current environment and so that's really what I was referring to there Adam.

Perfect that makes sense. Thank you Scott.

Our next question comes from Ken Worthington with J P. Morgan. Please go ahead.

Hi, Thank you for taking the follow up.

On G&A it rose.

Decently from the December quarter to the March quarter I believe in the prepared remarks, you talked about earn outs.

The increase in G&A is that a result of sort of one time items are reflecting green spring or is it you know Ah shall we use this as the run rate.

To build the model going forward.

Hi, Ken This is John again, I guess, if you're looking at page 17, where we provide the walk of our GAAP to non-GAAP and you kind of break out FRE at G.

G&A was up sequentially and there was but you know we do back out the earn out piece when we get to FRE. So you'll see a 10 million dollar add back of non core items and then we footnoted and what's included in there. So I guess I just want to make sure I address what you're talking about I mean sequentially. It was up you know I Wanna say a millionaire.

A million dollars on a I'll call. It a real G&A perspective, and that's kind of just a reflection in staffing and travel is picking back up and things like that so I just want to make sure I'm addressing what your question is perfect. You you just it so thank you very much.

Sure.

Our next question comes from Michael Cyprus with Morgan Stanley . Please go ahead.

Great. Thanks for taking the follow up I just wanted to come back to Scott to your commentary around the expectation for a more challenging fund raising environment looking ahead I take it in the commentary for the industry, but also would be curious around your perspective, there around how you see that impacting step stone in particular and then the second part.

The question is when I when I hear the more challenging fund raising environment can you just maybe expand upon from a geographic and a product level standpoint, I've heard commentary around over allocation by the U S pension fund community.

And so more of a U S. U S pension fund concern or are you seeing that as well and are you seeing this in other asset owners in other parts of the World and then at the product level. We're hearing it more with respect to private equity venture and growth in and not hearing it on the real asset side, just curious how you're hearing that as well.

Yeah, no. It's a good question, Michael I think yes.

Yes, there certainly are differences geographically the denominator effect does not only impact U S pension funds are.

That's certainly the case, but I think for every conversation we seem to be having about the denominator effect. We're also having conversations about with clients who have had a significant inflows or are under allocated to the asset class or had been waiting for an opportunity to begin to be to build a certain exposure.

And certainly many of those conversations are taking place outside of the U S. Today and so when you think about the mix of our business with 70% of our management advisory fees coming from outside of the U S and a diverse mix of different types of clients are we feel very good about the diversification from both a geographic and a client standpoint, we also feel better I feel very good about the mix by assay.

Class and when you think about certain of the infrastructure private debt asset classes. You know I think you've got a few things going on one you continue to have certain clients or Lps that are under allocated to those asset classes and two I think you've seen some renewed interest either because you're looking for inflation.

In the infrastructure asset class or floating rate debt securities and in private debt and so certain of those trends are working in our favor and then finally I would say that and we talked during the prepared remarks about the secondaries market and clearly that's a topic. We've spent quite a bit of time talking about over the last year or so although much of that.

You've been around GP led secondaries would you really driven a lot of the growth over the last two.

Two or three years I wouldn't be surprised to see some level of L. P. Secondaries come back and they were already starting to see this in the first part of the calendar year here today. So I think when I talk about those things and think about how it impacts steps down.

I think that the pace of fund raising.

I think funds will take slightly longer to raise and I think deployment as we've talked about in the past is sometimes difficult to forecast from from quarter to quarter. We certainly feel very good about our ability to deploy our for example to $17 billion of unemployed for any capital over a three or four year time period, but from quarter to quarter difficult to.

Predict.

Great. Thank you I appreciate it.

Thank you and there are no further questions at this time I'll turn the floor back to Scott Hart for closing remarks.

Actually I'm, sorry, one just popped in now one moment.

This question comes from John Dunn with Evercore. Please go ahead.

Hi, I was just wondering maybe with what markets have done so far this year any thoughts about how M&A an M&A sellers.

Stances on joining bigger institutions may have changed one way or the other.

Alright. Thanks, This is Mike Mccabe.

Look as you know we've enjoyed a lot of success here at step stone acquiring senior talented teams to build out the platform as well as augment things that we're currently doing Green spring was it was a good example of how this works on the venture capital front and look there continues to be quite a bit of M&A activity in our industry.

And as we've discussed in the past, we'll remain opportunistic as we have the expertise and we have the experience as well as the currency and capital structure to be flexible and nimble went out opportunities arise, but but as I think you know we move into this next cycle. You know some things may just fade away from groups, who are chasing the market.

Trying to get them excellent price based on where valuations were but there still appears to be a pretty large inter generational transition going on with with firms that were set up 15% to 25 years ago looking to manage through that transition through combining with a larger organization and or trying to find ways to distribute their <unk>.

Products and services through through different channels. So we'll continue to see a pretty active M&A market for the coming future and as a firm we will continue to be strategic and thoughtful on that front.

Thanks very much.

Thank you and with that that concludes our Q&A session I'll hand, the floor.

Back to Scott Hart for closing remarks.

Great well thanks, everyone for participating in today's call. We certainly appreciate your time and continued interest in steps down and we'll look forward to providing another update next quarter. Thank you.

Thank you. This concludes today's conference all parties may disconnect have a good day.