Q2 2023 StepStone Group Inc Earnings Call
Okay.
Welcome to the <unk>.
Fiscal second quarter 2023 earnings call at this time, all participants will be in a listen only mode. Later, we will conduct a question and answer session I'll now turn the call over to your host assessed by managing director corporate Investor Relations. Mr. Wang you may begin.
Thank you and good afternoon, joining me on the call today are Scott Hart, Chief Executive Officer, Jason <unk>, 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 the company's expected operating and financial performance for future periods, and our plans for future dividends.
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, and actual dividends declared may differ materially from those expressed or implied by these forward looking statements due to changes in circumstances or a number of risks or other factors that are described in the risk factors section of <unk>. 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 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 second quarter of fiscal 2023.
We reported a GAAP net loss of $67 $1 million for the quarter ended September 32022.
The GAAP net loss attributable to step Stone Group, Inc was $29 $2 million.
We generated fee related earnings of 39.0 million.
Adjusted net income of $37 3 million and adjusted net income per share of <unk> 33.
The quarter had no impact from retroactive fees. This compares to retroactive fees in the second quarter of fiscal 2022 that contributed $2 $3 million to revenue and $2 $1 million to fee related earnings and pre tax adjusted net income.
I'll now turn the call over to <unk>, Chief Executive Officer, Scott Hart.
Thank you, Jeff and good afternoon, everyone.
We delivered another very strong quarter generating our highest fee related revenue and highest fee related earnings effort. Despite continued volatility in the capital markets.
This period's results offer further evidence of the resilience of our business model across economic cycles.
Turning to our results on slide five we generated $37 million and adjusted net income for the quarter or <unk> 33 per share.
This is down from 40 in the prior year quarter and performance fees have moderated from record levels.
Looking over our trailing four quarters, we have generated $1 54 of adjusted net income per share, which is up 15% from a year ago.
Included in our quarterly results are $39 million of fee related earnings our best period ever up 48% from the prior year quarter and up there.
31% on a per share basis. These record results come despite no retroactive fees in the quarter.
As we highlighted last quarter, our fee related revenues are extremely resilient.
The majority of our management fees are contractually committed for multiple years. Additionally, our fees are generally tied to committed or invested capital and therefore not impacted by market fluctuations.
Furthermore, our diversification across geographies asset classes managers and strategies provides <unk> with a wide array of tools to help our clients navigate these challenging markets.
We view our fee related earnings is the balance that when coupled with our performance fees producing earnings engine with extremely strong growth and efficient cash flow.
To that end, we're excited to outline an approach to our capital management that will utilize the high predictability and visibility of our FRE to deliver a stable and growing quarterly dividend.
This will be complemented by a recurring supplemental annual dividend that would generally be funded by our performance related earnings Mike will give more detail shortly.
Moving to assets under management, we finished the quarter with 135 billion of AUM, an $80 billion of fee, earning assets.
Over the last year, we've grown fee, earning AUM by over $13 billion, or 20% generating consistent and balanced growth across asset class and commercial structure.
We had an active period meeting with new and long standing clients and these conversations have further validated the message we have delivered on recent calls.
While our clients and limited partners are undoubtedly cautious and selective theyre looking to stay invested and expect to see compelling opportunities across the private markets.
Manager selection and asset allocation are particularly important in today's environment and stepson is uniquely positioned to help investors navigate current conditions.
Late last month, we hosted the steps down 360 conference in New York, Our annual Investor Conference. We were thrilled to host the event live after holding it virtually the prior two years our clients. We're enthusiastic to return to our conference in person with attendance up 30% from pre COVID-19 levels and with roughly half the attendees traveling from outside the U S.
Yes.
Shifting to retail, making the private market acceptable to the individual investor as a central strategy for step stones growth story, and we are excited to announce the rebranding of <unk> as steps down private wealth.
We continue to see strong flows from the individual investor raising approximately $180 million for the quarter into our prime product, which will be rebranded as prime and which now stands at more than $850 million of AUM and has generated an annualized return of 33% to our investors in its first two years since inception.
Monthly subscriptions have reached an average of approximately $60 million over the quarter up from $15 million per month. This time last year.
As discussed on prior calls we have a pipeline of additional retail products, we intend to launch in the coming years and are excited to announce the first close of our private venture and growth fund to be rebranded spring of $120 million after quarter end we.
We have also executed closes across offshore parallel funds and feeder funds into S. Prime in spring totaling approximately $130 million further opening our private market strategies for individual investors globally with.
With this change also comes a reorganization of our relationship with the step stone private wealth team, which Mike will outline in more detail I'll now turn the call over to Mike Mccabe to speak about our asset growth fee related revenue growth and strategic initiatives in more detail.
Thanks, Scott turning.
Turning to slide seven we generated $19 billion of gross AUM inflows in the last 12 months with greater than $7 billion coming from our co mingled funds and greater than $11 billion in separately managed accounts.
Slide eight shows our fee, earning AUM by structure and asset class.
For the quarter, we grew fee, earning assets by over one $5 billion in.
And subsequent to the quarter, we activated our PE Secondaries fund, our multi strategy global venture capital Fund and our first ever infrastructure co investment fund.
These funds are still in fund raising mode by the Activations will result in approximately $2 billion of contributions to fee, earning assets in our fiscal third quarter.
Additionally, currency movements had a roughly $500 million drag on our fee, earning assets. This past quarter is dramatic U S. Dollar strengthening had an outsized impact.
Looking over the last 12 months, we have grown fee, earning assets by $13 billion or 20%.
When viewed over the longer term, we have generated a 28% organic growth rate since 2018.
Our unemployed fee, earning capital stands at 16 5 billion.
Slightly lower than our prior quarter.
Now moving to growth by commercial structure for the quarter, we generated $700 million in fee, earning assets in separately managed accounts.
Commingled funds contributed about $800 million of net fee, earning assets for the quarter driven in large part by deployments from our senior corporate lending fund and growth on our retail products.
As of November one S prime sits up more than $850 million of AUM.
When combined with the recently launched spring fund as well as offshore parallel funds and feeder funds our retail platform has crossed the $1 billion threshold.
For a total of $1 1 billion.
Along with this important milestone and as Scott mentioned, we are thrilled to announce the rebranding of converses, our step stone private wealth.
When we initially launched <unk> in 2019 as a wholly owned subsidiary we agreed to a flexible arrangement that provided the team with the right to buy the distribution governance and administration business and make it an open architecture platform available to step stone as well as other third party managers.
Given the tremendous success, we've enjoyed along with the growth in product development, we are making changes to ensure that the retail platform remains within steps down and to align its growth strategy with our institutional growth strategy.
We're eliminating the buyout option for their private wealth management team.
Distant with our core tenant of one building a culture around equity ownership alignment of interest and performance based compensation. We've established a mechanism for the private wealth team to participate in the growth of step stones franchise and to incentivize further growth in the platform.
Going forward the steps so private wealth team will receive a profits interest equal to the Eni earned by step stone private wealth after covering all expenses associated with the dedicated distribution governance and administration team with an allocated portion of the associated fee revenue.
While this will eventually lead to an effect similar to noncontrolling interests on our non-GAAP reporting this arrangement will not be dilutive to our near term earnings.
Additionally, we are locking in our ability to buy out the profits interest at an accretive price in the future through a put call arrangement.
This arrangement allows the step stone private wealth management team to put the profits interest in step stone beginning in July of 2026.
And allow step stone to call the profits interest beginning in July of 2027.
The full terms of the option agreement are incorporated in the 8-K, we filed this afternoon and are summarized in a related <unk> document that we posted on our shareholders website.
The approach towards compensation and incentives that we are taking with our retail strategy is one we have traveled many times as we expand our capabilities beyond private equity into real estate infrastructure and private debt.
We believe these important strategic moves provide for better alignment and facilitate accelerating growth of this platform.
Slide nine shows the evolution of our management and advisory fees, where we are generating nearly $4 per share and revenues over the last 12 months, representing an annual growth rate of 25% since 2018.
We generated a blended management fee rate of 55 basis points, which is slightly higher than prior years due to a mix shift towards commingled funds from the contribution of Green spring.
Now before turning the call over to Johnny I would like to take the opportunity to discuss capital management and how we plan to approach dividends going forward.
As we have discussed in the past we are a capital efficient business model that generates significant free cash flow.
The other two are earnings or free cash flow generation comes from two sources.
Fee related earnings, which are highly visible and contractually linked to revenues committed for many years.
Performance fees, which we view as a backlog of earnings linked to over $550 million and net accrued carry that will be realized over time, but our more episodic in nature.
And thinking through the sources of cash flow and after engaging with several investors and stakeholders. We plan to adopt an approach to dividends that is aligned to both our business model and to the preferences of our shareholders.
We have approved a dividend of <unk> <unk> for this quarter we.
We expect to grow this quarterly dividend generally at the same pace as our fee related earnings. This normal dividend provides a strong yield and payout.
Additionally, we plan to augment our payout each year with a recurring supplemental dividend funded by excess cash that is generally tied to full year performance based earnings.
We plan to pay the supplemental dividend in addition to our regular quarterly dividend each June subject to board approval.
With this approach we expect our shareholders will benefit from both the growth in FRE with a steady and growing quarterly dividend and will realize tangible value from our performance fees to an annual supplemental payout.
We believe the market is assigning relatively little value to alternative managers performance fees today.
Our supplemental payout presents a concrete and transparent way for our shareholders to realize this value.
I will now turn the call over to our CFO John Randall.
Thank you Mike I'd like to turn your attention to slide 11 to speak to a few of our financial highlights for the quarter, We earned management and advisory fees of $119 million strength in revenue was driven primarily by continued growth in fee, earning assets.
Profitability remained very strong as our FRE margin expanded to 33% for the quarter, approximately 100 basis points year over year and quarter over quarter.
Scott mentioned, we did not receive any retroactive fees in the current quarter, excluding the impact from retroactive fees in the prior quarter comparisons we expanded our FRE margin by nearly three percentage points on both a year over year and quarter over quarter basis.
Shifting to expenses compensation was down nominally versus the prior quarter as we saw some adjustments to bonus accruals, while G&A increased at a modest pace given incremental travel costs and professional fees.
Gross realized performance and incentive fees were $32 million for the quarter as realizations slowed from the elevated pace, we had seen in the last five quarters, partially offset by strong incentive fees.
We anticipate a continued moderation of realizations in the near term maybe.
Moving to slide 12, adjusted revenue per share is 8% higher for the first two quarters of the fiscal year, driven by 27% growth in per share management and advisory fees offset by a 20% decrease in performance fees speaking to the longer term adjusted revenue per share has grown by 30% compounded annual rate since <unk>.
2018.
Shifting to profitability on slide 13 fee related earnings per share has grown by 32% in our first two quarters. The increase was driven by growth in management and advisory fees and by margin expansion.
Looking over the longer term, we have generated an annual growth rate of 45% in fee related earnings per share since 2018.
Our year to date Eni per share is down relative to last year's elevated level, but has an annual growth rate of 38% over the long term period, driven by robust growth in both fee related earnings and realized net performance fees.
Moving to the balance sheet on slide 14, gross accrued carry finished the quarter at approximately $1 2 billion, which was $177 million lower than the previous quarter. The decrease was primarily driven by the reduction of underlying valuations. During the June 30 period as a reminder, our accrued carry balance is reported on a one quarter.
The lag.
Our own investment portfolio ended the quarter at $107 million essentially flat versus the prior quarter unfunded commitments to these programs were $85 million as of quarter end.
Our pool of performance fee eligible capital has grown to 59 billion and this capital is widely diversified across multiple vintage years and 165 programs.
63% of our unrealized carry is tied to programs with vintages of 2017 earlier, which means that these programs are largely out of their investment periods and have entered harvest mode, 57% of this unrealized carry a source from vehicles with deal ideal waterfalls, meaning realized carry may be payable at the time of investment.
Yeah.
This concludes our prepared remarks, I'll now turn it back over to the operator to open the line for any questions.
If you would like to ask a question. Please press star one on your telephone keypad now you'll be placed into the queue in the artery themed please be prepare to ask a question when prompted once again to ask a question. Please press star one on your phone now.
Our first question comes from Ben <unk> from Barclays. Please state your question.
Hi, guys. Thanks, so much for taking my question.
Want to ask about the FRE margin I think last quarter. You said you were expecting about 30% for the year and it looks like Youre tracking ahead of that you came in.
A good bit ahead of our model for the quarter any kind of update to your full year your full year expectations and maybe the longer term trajectory.
Hi, Ben It's Mike Mccabe here. Thanks for the question, Yes, we came in a little bit ahead of what we expected in part to assume benefits from expenses as well as other things going on but look I think our guidance that we offered about the full year hasnt changed and we still feel over the medium term op.
Operating leverage will continue to kick in as we scale and we still think that our margin somewhere as we've discussed in the past in the mid 30 is as a part of the thesis that should be maintained but we had a good quarter and we feel good about the result, and and we feel good as we head into the end of the year, but nothing's changed from our perspective in terms of what our expectations are.
Sure.
Great and if I could maybe ask a follow up on your retail flows it looks like those kind of picked up nicely in the quarter at least versus what we saw last quarter on a kind of the 60 million a month how much of that is due to kind of increase distribution versus same store sales and as we kind of continue to go through the winter.
Potentially invest in calendar 2022, and and that that next year that capacity could return I guess I guess one is this something that that you are seeing and if so did it.
Depressed September flows at all or could this challenge December quarter commitments.
Two Conversely could we actually see equipments step up.
Hum early next year.
Yes, Michael Thanks for the thanks for the question. This is Scott and I think our commentary around the fund raising environment will really be a continuation of some of the comments that we've made over the last couple of quarters. I think you are right to highlight that because of the number of funds that have been in market fund raising many of L. Many Lps about a significant number of.
<unk> in their pipeline and that has meant that in some cases a good portion of their 2022 budget was spent early in the year. Obviously what has further complicated that is just the decline in the public markets and the resulting denominator effect.
Now I would say as we've been out on the road speaking with our clients and prospective clients as we welcomed many of our clients at our 360 conference a few weeks ago.
We've been having many conversations with Lps.
This denominator effect is real but what I would tell you is that Lps don't seem to be panicking certainly in some cases may have reduced budgets, but those budgets are not being reduced to zero I think the challenge has been.
There's just no there's been no little sense of urgency which has resulted in.
Timing, taking a bit longer than during the hot fundraising markets that we've had over the last couple of years here and so whether that is the time between a commitment being approved and ultimately close whether that is the amount of time to get to the next closing on a co mingled fund we have seen a bit of a slowdown from a from a timing Sam.
But I think much of it at this point is timing you might made the comment during our prepared remarks that we have now activated a couple of our commingled funds post quarter at quarter end, which will help drive another $2 billion of fee, earning AUM in the next quarter and I do think that as we enter 2023.
We will free up some some some budget.
<unk>.
Nlp's calendars and budgets there.
Okay, Great wonderful thanks for the color and then if I could just switch gears and just ask a quick follow up on your on the retail comments.
Progress is clearly very strong and you just kind of wondering from a competitive perspective can you provide any color around the I guess the competitive environment for your products and kind of in terms of.
Is there more or less competition for that retail alternatives shelf space.
So maybe I'll start and then hand, it to Jason to talk in a bit more detail but.
As we think about the two products that we have.
Started the raise in the retail space, both as prime and spring as we talked about in prior quarters, We really took a solutions oriented approach to the way that we.
The market there as prime being our single ticket solution for the private markets and really capitalizing on some of the key differentiators of steps down that being a multi asset class multi strategy global platform that has the ability to offer.
Products, such as that one I think similarly, as we moved on to spring our ability, particularly post the green spring acquisition that closed just over a year ago to offer a product like this is particularly differentiated end.
Not existed in the market until until spring, but maybe I'll just ask Jason to provide any provide any other comments he might make as it relates to the competitive market.
Yes, the only thing I would add Scott is that as it relates to S. Prime in addition to it being multi asset remember this is accredited.
Eligible which is differentiated from many of the other.
<unk> funds focused on private equity.
That are out there today.
Okay, great. Thank you.
Our next question comes from Samantha Plat from Bank of America. Please state your question.
Thank you for taking my question.
Wanted to start with a retailer can you give us some color on where you see both the white spaces and the client demand from the retail side in terms of product offering.
Sure. Thanks for the question Jason again.
Look as.
As prime and spring are the first two products they are not our last two products.
The asset classes that we cover.
Include infrastructure real estate private debt beyond just private equity and we think that there is room for retail oriented product across the asset classes.
Not ready to announce a fun going live just yet but development opportunities across the asset classes exist for step stone, where we think we can create products that are responsive to <unk>.
Holds in the market and that play exactly to our strengths and the flywheel effects of the platform that we've created.
Great and then just a follow up I wanted to touch on commingled fundraising quickly can you remind us what funds are coming are currently raising and any large ones that are coming back to market in 2023.
Sure. Thanks methods. So if you look at slide 29, excuse me of the earnings presentation, you'll see a table with both our historic commingled funds as well as a list of those that are currently in market a few comments that I would make.
One we have recently held our final close on our VC Micro fund at about $234 million above that funds at target. If you look at the table at the bottom of the page here, you'll see a list of different funds some of which Mike mentioned during his prepared remarks, so our private equity Secondaries fund, which has to date.
<unk> closed on $1 $2 billion was activated post quarter end, our multi strategy global venture capital Fund has closed on over $400 million. Similarly was activated post quarter end.
And our infrastructure our co investment fund the first of its kind hear it steps down as had initial closing as well.
There are.
There are several funds that have returned to market have not yet held first closing as those would include our multi strategy growth equity fund our special situations real estate fund as well as our corporate direct lending fund and then obviously <unk>.
And spring will both continue to raise on a on a go forward basis here.
Great. Thank you.
Our next question comes from Adam Beatty from UBS. Please state your question.
Thank you and good afternoon.
I wanted to ask about the transition at converses and just obviously theres some changes to the economic structure. So I guess number one is.
What what level of AUM or what have you coming through that group would we expect to start seeing you know.
Some kind of notable impact on your adjusted income statement, whether it's you know a penny per share of a million dollars of anti or what have you so and that'll that'll be helpful. In terms of how you know.
The timing of when should we should expect that also I wanted to ask operationally if there was anything changing it's you know it.
It sounds like there's good traction and good momentum.
You're planning to grow the group and also is it still open architecture like it was at the inception or are you adjusting that at all sorry for all the questions. Thank you.
So thanks, Adam appreciate the.
Excuse me the question I'll start on the first one and then maybe hand to Jason for the second.
So on the first question and again sort of need to separate between the distribution business and put part of the business being rebranded step stone private wealth here and the asset management part of the business and we mentioned during some of our remarks that back that to.
To date the distribution business on its own has not been has not been profitable clearly the asset management side is we haven't given specific guidance in terms of when that will crossover, but I think have historically disclosed some of the fee rates as well as the <unk>.
Blitz on that on that business, which will hopefully be helpful. As we progress and obviously as we have done in the past we'll continue to keep you updated on the AE. Both the flows and the current AUM across all of the retail oriented products.
But maybe Jason for the second part of your question.
Yeah.
No real change to the operating model.
With the team.
We've ironed out how.
To work together as partners over the last two years and it's been going great. So no reason to fix something that isn't broken.
In terms of the team size.
Continuing continuously adding.
Two the distribution team and the operations team that's part of the private wealth platform.
To scale it not only with the.
AUM.
And the inflows, but also with the number of funds and number of parallel vehicles and the like from a governance perspective and.
Administration perspective team will continue to grow in size nearly 50 today.
And then in terms of.
Scope, and where where they're spending their time as we have expanded our capabilities.
As Scott alluded to earlier spring being a great example, and the Green spring acquisition that closed last year.
We think that we can create a number of offerings for this channel that are directly responsive to the needs of the channel and so would expect that.
Well platform will be focused on stem.
Steps don't powered product here into the future.
That's great detail. Thank you both maybe just one more if I could.
Maybe a quick one just around the kind of a secondary dividend around the performance allocations.
It seems like it should be a really positive development for shareholders.
Just in terms of the level of payout or what have you wondering how that might compare with the implied payout levels around your FRE oriented our dividends, which are obviously fixed for for a few quarters.
Yeah. Thanks, Adam it's Mike here and as I mentioned in my remarks, the supplemental dividend.
We expect to fund once a year every June in addition to the quarterly dividend and look we think it's a it's a way to better align the dividend with with our business model and give shareholders. The dual benefit of of capitalizing on a very steady reliable growing base dividend.
Born out of the FRE, but more importantly, allowing our shareholders to capitalize on our stance on a very reliable and growing base dividend with the performance fees.
The payout will be generally tied to a full year performance based earnings from our carried interest so.
Yes, I think we're looking at.
Basically our full year performance fee based earnings subject to board approval as we discussed in and we're excited to make this announcement as well so thank you.
Okay sounds great. Thank you Mike appreciate it.
Welcome.
Our next question comes from Alex <unk> from Goldman Sachs. Please state your question.
Okay.
Guys. Good evening, thanks for the question.
I wanted to go back to one of the earlier questions around the LP behavior in some of the allocation trends you guys are seeing especially on the back of the conference you recently at so.
It feels like up until this point the majority of the headwinds we've seen in the space of surround that private equity predominantly.
U S pension plans.
Given your fairly broad and global footprint, and obviously you guys focus not just private equity, but other asset classes as well.
Seeing any of the denominator effect headwinds spilling into sort of other asset classes outside of private equity and again, particularly outside of the U S pension plan kind of LP base.
Yes, Alex Thanks for the question I mean, I think I have said in the past that I'm not sure I.
Completely agree with the narrative that that is only limited to U S. Pension funds I think the denominator that has the ability to impact.
Others as well, but I think it's probably been less prevalent as you mentioned in other asset classes, where many lps find themselves under allocated today or two.
I think the difference that we've cited in the past as it relates to certain of the international markets, where we've been active is that you still have a large number of Lps coming online with private markets allocations for for the first time.
And Doug I think as we engage with our clients. There are other factors that may impact some of our international Lps, including some of the FX movements of late which have impacted some of their unfunded commitments. I think there are a variety of factors that are that are impacting <unk>.
LP allocations today I think what continues to excite us about our position in the marketplace is that with our diversified platform across asset class I mean, one of the things that you and geographies one of the things that you find is that.
At a time like this where many of our clients believe this will be an interesting time to invest in these will be attractive vintage years, but they may look to other strategies that where it may have been out of favor over the last several years or more.
It may have come into favor for various reasons, whether that is infrastructure as a result of the embedded inflation protection or some of the opportunities that we're seeing around energy transition our energy security whether that is in the private debt space, where not only have you which is largely floating rate not only have you seen.
A rise in base rates, but also spreads increase and so when you think about our teams investing at the very top of the capital structure.
That those increased rates I think we're seeing renewed interest there or private debt teams thinking about opportunistic credit so not just distressed but other areas, where you can take on complexity or identify funding gaps to generate attractive returns, but even within asset classes like private equity and real estate.
Where I think we will see opportunities in and around the secondary space as a result of many of the things that are taking place in the market. Today. So again I think there are plenty of opportunities and there is plenty of interest amongst lps to identify attractive opportunities in the coming vintage years here.
Great very helpful.
Second question.
Maybe just a clarification and a bit of a broader question as well about capital management, I guess broadly and tobacco.
Comments.
Nice job on the dividend I think it will be welcome move as well.
So essentially you are paying out 100% of PRA once a year.
Kind of at the bottom line and what is the timing of that is that a December event. So you kind of decided by the end of the calendar year or is it a fiscal year.
My bigger picture question, sorry for the multipart or I guess, but.
How does that inform your broader capital allocation decisions, including the potential of buying out noncontrolling interest from teams.
On the debt side or the infrastructure side, where you don't currently have a 100% ownership.
Sure. Thanks, Alex So I think.
The payout is going to be.
Largely in line as I mentioned with Alex.
In line with our full year performance based fee rate.
Is it going to be 100% or close to 100%. That's what our expectations are for now, but again as I mentioned, it's subject to board approval and frankly, it's tied here a little bit of your next question and it's also tied to the opportunities we see in the market. So we wanted to wanted to do it on a recurring basis once a year.
And have the flexibility throughout the year to react to any opportunities that may arise, but the expectation is that we would make the payout. Each June so its fiscal based subject to board approval and will be paid out in June in addition to the base quarterly dividend.
The second part of your question is that this does not inhibit our ability.
In any way shape or form to pursue any other opportunities, whether it's internal M&A and buying in the NCI or externally as we've done in the past.
As <unk> seen in the past whenever we do any kind of M&A.
We prioritize alignment of interest we prioritize equity ownership and I think that will continue to make that our priority as we think about buying in the NCI with our subs likely be equity based not so much cash base that we have the flexibility to toggle between the considerations based on the environment that we're in but we.
Would expect that that would not be much of a use of cash of more of a more of a shared equity transaction and maintaining that important equity like culture that got us to where we are today and in maintaining those alignments of interest that have also kept the teams working collaboratively and across asset classes and across strategies.
Alright Super Thanks, very much.
Thanks, Alex.
Our next question comes from Michael Cyprus from Morgan Stanley . Please state your question.
Good afternoon. Thanks for taking the question just maybe coming back to some of the commentary around the denominator effect that you were alluding to in some Lps, perhaps being over their allocations and then you layer in less realization activities. There's just less distributions going back to L. P. So just given that setup curious what sort of activity and interest youre seeing around.
Liquidity solutions that could be offered to Lps secondary transaction activity, what sort of activity levels are you seeing there how is that trending what might help accelerate that.
From here and what sort of discounts are you seeing in the marketplace and how is that trending.
Sure. Thanks, Mike Yeah look I think this is something that we've talked about over the last couple of quarters is that as you do find Lps over allocated we suspect that part of the solution will be looking to the secondaries market and I think we've seen Lps handle these in a few different ways one may be just slowing their commitments.
By being a bit more selective about which of their re ups to pursue but over time and particularly if this environment continues we would expect to see more LP is looking to tap the secondaries market.
And as we've talked about in prior quarters the growth in the secondaries market, which had been so driven by GP led secondaries over the last couple of years has now seen quite a bit of LP activity at least in terms of deal flow that is hitting our funnel I think in terms of what is actually transacting, it's still a low percentage still have a bit of a bid ask.
At spread there is still uncertainty around exactly where valuations will shake out in the coming quarters, but when we look at our own pipeline of activity on the LP led secondary side, we saw a tremendous tremendous growth year over year in that area and I think frankly would expect to see continued interest on the GP led side as well as this.
We will remain one of the.
Few potential exit route in this in this environment I think we've talked in the past about the fact that there is a quite a bit of dry powder, both in the hands of in traditional.
Buyout firms, but also in the hands of secondary buyers that are likely to continue to drive that activity. We certainly excuse me have seen.
Discounts increase it depends a bit on the strategy that youre looking at but whereas buyouts.
The market probably went from high Ninety's pricing to now down into the low <unk> you saw venture and growth funds at you had greater discounts.
But again I think the question is is a bit less on the discount right now more aware is.
The next quarter as Mark going to be so you don't entered into a transaction thinking youre buying into discount only to find out you've actually paid a premium.
Great and just a follow up question on re up rates, just curious what youre seeing there over the past quarter or two as you've been raising commingled funds and separate account.
Funds as activity there just curious what you're seeing on the re upside in your cost customers are re upping how much are they on average sort of increasing the size of the commitments relative to what they had funded in the past and then separately can you talk to some of the new customer activity I know during Covid. This was an area that had slowed down but now that you're out.
Traveling and we see it in the G&A there as well just curious what youre seeing on the new customer trends and if you're able to quantify anything there would be helpful. Too. Thank you.
Sure so on the re up rates.
And the stat that we've shared in that we started to share with you last quarter was one that was more of a since inception.
<unk> right, which was north of 90% on our separate accounts and on average those separate account has seen 30% increase.
From the prior to the subsequent separate account that doesn't reflect the last couple of quarters, but what I would tell you. We haven't shared a stat there, but I would tell you that re up rates have continued to be quite strong, particularly on the separate account side in general we tend to find on the co mingled side that.
Given the number of Lps in those in those funds.
Often see slightly lower re up rates, but it's also a great opportunity to engage with with new with new clients, who are looking to access. This step stone platform. So again, I think you're continuing to see strong re up activity and I think youre right as we've been able to get it out there on the road both.
As it relates to some of the co mingled funds that were in the market with but also to continue dialog around separate accounts, we've been making very good progress with with new clients I referenced that earlier I mean, one of the challenges being just the timing between an approved account and actually getting it over over the finish line is still taking some time again I think partially driven by this.
Slight lack of emergency if you will but we feel very good about the progress, we're making with with new clients today.
Great. Thank you.
Okay.
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Well, great well thanks, everyone for your time today as always we appreciate your interest in the steps down story and look forward to keeping you up to date and in the quarters ahead. Thank you very much.
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