Q3 2024 StepStone Group LP Earnings Call

Operator: Thank you for standing by, and welcome to Stepstone's fiscal third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Thank you for standing by and welcome to step stones fiscal third quarter 'twenty 'twenty four earnings conference call.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session generic question at that time. Please press star one on your Touchtone telephone.

Operator: After the speaker's presentations, there will be a question and answer session. To enter a question at that time, please press star 1-1 on your touchtone telephone. Please be advised that today's call is being recorded. I would like to introduce your host for today, Mr. Seth Weiss, Head of Investor Relations.

Please be advised that today's call is being recorded.

I would now like to introduce your host for today, Mr. Seth Weiss head of Investor Relations. Please go ahead.

Okay.

Seth Weiss: Thank you, and good afternoon all. Joining me on today's call are Scott Hart, Chief Executive Officer; Jason Ment, President and Co-Chief Operating Officer; Mike McCabe, Head of Strategy; and David Park, Chief Financial Officer. During our prepared remarks, we will be referring to a presentation which is available on our investor relations website at shareholders.stepstonegroup.com. 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. Forward-looking statements reflect management's current plans, estimates, and expectations, and are inherently uncertain and are subject to various risks, uncertainties, and assumptions.

Thank you and good afternoon all.

And me on todays call are Scott Hart, Chief Executive Officer, Jason Mann, President and co Chief Operating Officer, Mike Mccabe head of strategy and David Clark Chief Financial Officer during.

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

Before we begin I'd like to remind everyone that this conference call as well. So the presentation contains certain forward looking statements regarding the company's expected operating and financial performance for future periods.

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

Seth Weiss: Actual results for future periods 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 Stepstone's periodic filing. These forward-looking statements are made only as of today, and, except as required, we undertake no obligation to update or revise anything. 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. In addition to our financial results, we filed an 8K that details an agreement under which Stepstone will buy in the non-controlling interests of the infrastructure, private debt, and real estate businesses over time. Scott and Mike will provide commentary in their remarks. Turning to our financial results for the third quarter of fiscal 2024, beginning with 5-3, we reported a net loss of $23.4 million.

Actual results for future periods 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 step stones periodic filings.

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.

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.

In addition to our financial results, we filed an 8-K that details in an agreement under which steps down or buying the noncontrolling interests at the infrastructure private debt and real estate businesses overtime Scott.

Scott and Mike will provide commentary in their remarks.

Turning to our financial results for the third quarter of fiscal 2024.

Beginning with slide three we reported a GAAP net loss of $23 $4 million.

Seth Weiss: Gap net loss attributable to Stepstone Group Incorporated was $20.2 million, or $0.32 per share. Moving to slide four, we generated fee-related earnings of $50.7 million, up 19% from the prior year quarter, and we generated an FRE margin of 33%. The quarter reflected retroactive fees resulting from the interim closings of Stepstone's Private Equity Secondaries Fund, Stepstone's Multi-Strategy Global Venture Capital Fund, and Stepstone's Infrastructure Co-Investment Fund, which in total contributed $8.6 million to revenue. There were no retroactive fees in the third quarter of fiscal 2023.

GAAP net loss attributable to steps down group incorporated was $22 million or <unk> 32 per share.

Moving to slide four we generated fee related earnings up $57 million up 19% from the prior year quarter, and we generated an FRE margin of 33%.

The quarter reflected retroactive fees, resulting from interim closings of step stones private equity Secondaries fund steps Stone's multi strategy global venture capital Fund and step stones infrastructure co investment fund, which in total contributed $8 $6 million to revenue.

There were no retroactive fees in the third quarter of fiscal 2023.

Seth Weiss: Finally, we earned $42.1 million in adjusted net income for the quarter, or $0.37 per share. This is up from $31.2 million, or $0.27 per share, in the third fiscal quarter of last year, driven by higher fee-related earnings and higher net performance fees. I'll now hand the call over to Stepstone CEO Scott Hart. Thank you, Seth, and good afternoon, everyone.

Finally, we earned $42 $1 million and adjusted net income for the quarter or <unk> 37 per share. This.

This is up from $31 $2 million or 27 per share in the third fiscal quarter of last year, driven by higher fee related earnings and higher net performance fees.

Now I'll hand, the call over to step stone CEO Scott Hartz.

Thank you Seth and good afternoon, everyone. We delivered solid performance in our fiscal third quarter generating robust earnings fund raising and asset growth setting steps down up for continued success in 2024 and beyond.

Scott Hart: We delivered solid performance in our fiscal third quarter, generating robust earnings, fundraising, and asset growth, setting Stepstone up for continued success in 2024 and beyond. As Seth mentioned, we are also excited to announce that we have entered into agreements to acquire the remaining stakes in each of our infrastructure, private debt, and real estate businesses over the coming years. Mike and I will provide additional detail later in our comments. Beginning with our results, gross new commitments were $6 billion in the quarter.

As mentioned we are also excited to announce that we've entered into agreements to acquire the remaining stakes in each of our infrastructure private debt and real estate businesses over the coming years, Mike and I will provide additional detail later in our comments.

Beginning with our results gross new commitments were $6 billion in the quarter, while the slower capital market conditions over the last two years have created a more challenging fund raising backdrop, we've continued to engage with existing and prospective clients, who remain very constructive on the private markets and more specifically many of the strategy that steps down is able to offer.

Scott Hart: While the slower capital market conditions of the last two years have created a more challenging fundraising backdrop, we've continued to engage with existing and prospective clients who remain very constructive on the private markets and, more specifically, many of the strategies that Stepstone is able to offer. This quarter represents the fruition of many of those conversations and reflects the strength of our client relationships, many of which we've cultivated over decades. We continue to have a strong pipeline for fundraising across both new and existing clients. However, as we have commented in the past, we believe fundraising should be evaluated over a multi-period horizon.

This quarter represents the fruition of many of those conversations and reflects the strength of our client relationships many of which we've cultivated over decades.

We continue to have a strong pipeline for fundraising across both new and existing clients.

As we've commented in the past, we believe fundraising should be evaluated over a multi period horizon. The dynamics of our business May result in episodic inflows, particularly in separately managed accounts, where we raised $4 $3 billion this quarter.

Scott Hart: The dynamics of our business may result in episodic inflows, particularly in separately managed accounts, where we raised $4.3 billion this quarter. However, as managed accounts largely pay fees on deployment rather than commitments, the contribution to fee-earning AUM and fee-related earnings tends to be steadier. Additionally, because of our strong retention rate, which is greater than 90 percent, our separately managed account relationships are extremely sticky and provide meaningful revenue visibility. By shifting to commingled funds, we generated gross inflows of $1.7 billion. We closed on $625 million in our private equity secondaries fund, where we have raised approximately $3 billion to date.

However, as managed accounts largely pay fees on deployment rather than commitments the contribution to fee, earning AUM and fee related earnings tends to be steadier.

Additionally, because of our strong retention rate, which is greater than 90%. Our separately managed account relationships are extremely sticky and provide meaningful revenue visibility.

Shifting to co mingled funds, we generated gross inflows of $1 7 billion.

We closed on $625 million in our private equity Secondaries fund, where we have raised approximately $3 billion to date.

Scott Hart: We also had additional closes in our Special Situation Real Estate Secondaries Fund, our Multi-Strategy Global Venture Capital Fund, our Infrastructure Co-Investment Fund, and our Multi-Strategy Growth Equity Fund. We continue to see strong momentum in our Evergreen Private Wealth products, where we raised over $300 million in subscriptions for the quarter and over $1 billion in subscriptions for the last 12 months. We are excited to further expand our private wealth platform with our recent filing of the Stepstone Private Credit Income Fund, or what we are calling CreditX. This is an interval fund for U.S. investors. The fund will focus primarily on U.S. direct lending and specialty credit and will deploy capital through co-investments and secondary, like S Prime, our all private markets fund, and Strux, our infrastructure fund.

We also had additional closings in our special situations real estate Secondaries fund, our multi strategy global venture capital Fund, our infrastructure co investment fund and our multi strategy growth equity fund.

We continue to see strong momentum in our evergreen private wealth products, where we raised over $300 million of subscriptions for the quarter and over $1 billion in subscriptions for the last 12 months.

To further expand our private wealth platform with a recent filing of the step stone private credit income fund or what we are calling credits.

This is an interval fund for U S. Investors. The fund will focus primarily on U S direct lending and specialty credit and we'll deploy capital through co investments and secondaries like.

I guess prime are all private markets fund and strokes, our infrastructure fund <unk> will allow for daily subscriptions and will be investable by ticker.

Scott Hart: Credex will allow for daily subscriptions and will be investable via a ticker. We believe that the combination of bespoke separately managed accounts, commingled funds, and our growing suite of private wealth offerings drives a sustainable pace of growth that will allow us to achieve the goal we set out at last June's Investor Day of doubling fee-related earnings by fiscal 2028. The strength of our platform creates a powerful flywheel, which helps propel Stepstone forward.

We believe that the combination of bespoke separately managed accounts commingled funds and our growing suite of private wealth offerings driving a sustainable pace of growth that will allow us to achieve the goal. We set out at last June's investor day of doubling fee related earnings by fiscal 2028.

The strength of our platform creates a powerful flywheel, which helps propel step stone forward, but our most important asset continues to be the people that worked so diligently to enable our success.

Scott Hart: But our most important asset continues to be the people that work so diligently to enable our success. To that end, I'm thrilled to highlight Stepstone's recent recognition from pensions and investments as one of the best places to work in money management. We are a fast-growing, multinational asset manager with capabilities across the private markets. We have made a concerted effort to develop a strong, distinct, and unified culture at Stepstone by embracing our diversity in both backgrounds and capabilities. Our success has been and will continue to be dependent on our ability to attract, develop, and retain talent.

To that end I am thrilled to highlight step stones recent recognition from pensions and investments is one of the best places to work in money management.

A fast growing multinational asset manager with capabilities across the private markets. We have made a concerted effort to develop a strong distinct and unified culture. It steps down by embracing our diversity in both backgrounds and capabilities. Our success has been and will continue to be dependent on our ability to attract develop and retain talent.

Scott Hart: Now, turning to the economic integration of our asset class teams, we are thrilled to announce that we have entered into agreements to purchase the non-controlling interest in each of these businesses over the coming years. As a reminder, when we made the strategic decision nearly 10 years ago to expand our business from private equity into infrastructure, private debt, and real estate, there were a couple of things that were clear to us. We needed to build large, experienced senior teams who had built their careers in each of these asset classes to maximize our combined success, and we felt that offering equity ownership in the businesses that they were building would be critical to attract high-quality teams and incentivize a type of entrepreneurial behavior that has made Stepstone itself a success. Since the time of our IPO three years ago, we've been consistent in telling you three things. First, this structure has been working well and has had its intended result.

Now turning to the economic integration of our assay class teams. We are thrilled to announce that we've entered into agreements to purchase the noncontrolling interest in each of these businesses over the coming years.

As a reminder, when we made the strategic decision nearly 10 years ago to expand our business from private equity into infrastructure private debt and real estate. There were a couple of things that were clear to us.

We needed to build large experienced senior teams who have built their careers in each of these asset classes to maximize our combined success.

And we felt that offering equity ownership in the businesses that they were building will be critical to attract high quality teams and incentivize the type of entrepreneurial behavior that has made it steps down itself a success.

Since the time of our IPO three years ago, we've been consistent in telling you three things.

This structure has been working well and has had its intended results.

Scott Hart: As we outlined during our Investor Day last June, the infrastructure, private debt, and real estate businesses have been on a similar trajectory to that of our private equity business during its first 10 years. We attribute much of that success to the quality of our team and the incentive structure driving their behavior. Second, there has always been a shared vision that as these asset classes continue to scale, we would execute an equity exchange to improve our alignment for the next phase of Stepstone's growth, and third, any transaction will be done on an accretive basis for our shareholders. We believe that the transaction agreements we have entered into achieve all of this and more while benefiting all stakeholders. The structure will continue to incentivize asset class teams that drive growth in their businesses while improving Stepstone's ability to participate in that growth. The long-term nature of the agreement helps ensure that there will be no disruption to the client experience.

As we outlined during our Investor day last June the infrastructure private debt and real estate businesses have been on a similar trajectory to that of our private equity business. During its first 10 years.

We attribute much of that success is the quality of our team and the incentive structure driving their behavior.

There has always been a shared vision, but as these asset classes continue to scale, we would execute an equity exchange to improve our alignment for the next phase of step stones growth in.

And third any transaction will be done on an accretive basis for our shareholders.

We believe that the transaction agreements we've entered into achieve all of this and more while benefiting all stakeholders.

The structure will continue to incentivize our asset class teams to drive growth in their businesses, while improving step stones ability to participate in that growth.

The long term nature of the agreement to help ensure that there will be no disruption to the client experience.

Michael Kim: The transaction creates a path to 100% ownership and reduces complexity over time, and the valuation mechanism, which Mike will describe in more detail, ensures an accretive transaction. We've worked incredibly closely with each of our asset class heads, James, Marcel, and Jeff, and their teams over nearly a decade, and we look forward to the next phase of our partnership in the years ahead. I'd now like to turn the call over to Mike, who will speak to our growth in the quarter and will provide greater detail on the buy-in of the non-controlling interest. Thanks, Scott.

The transaction creates a path to 100% ownership and reduces complexity overtime and evaluation mechanism, which Mike will describe in more detail ensures an accretive transaction.

We've worked incredibly closely with each of our assay class heads, James Marcel and Jeff and their teams over nearly a decade and we look forward to the next phase of our partnership in the years ahead.

I'd now like to turn the call over to Mike, who will speak to our growth in the quarter and will provide greater detail on the buying of the noncontrolling interests.

Michael Kim: Turning to slide 7, we generated $17.5 billion of gross AUM inflows during the last 12 months, with over $11 billion coming from separately managed accounts and over $6 billion coming from commingled funds. Slide 8 shows our fee-earning AUM by structure and asset class. For the quarter, we grouped the earning assets by $2.1 billion.

Thanks Scott.

Turning to slide seven.

Generated $17 5 billion of gross AUM inflows during the last 12 months with over $11 billion coming from separately managed accounts and over $6 billion coming in from commingled funds.

Slide eight shows our fee, earning AUM by structure and asset class for the quarter, we grew fee, earning assets by $2 $1 billion.

Michael Kim: While most of the net growth came from our commingled funds, we had positive gross contributions in both commingled funds and separately managed accounts. We experienced $1.7 billion of distributions, including a large distribution of approximately $1 billion from our infrastructure-managed account, offsetting the gross AUM contributions, resulting in a flat fee-earning AUM growth within our SMAs. This is consistent with the expectation we set out on our previous earnings call and represents a relatively low fee-paying mandate. We had a record-breaking quarter on two important operating metrics.

While most of the net growth came from our commingled funds, we had positive gross contributions in both coming out of bonds on separately managed accounts.

We experienced $1 7 billion of distributions, including a large distribution of approximately $1 billion from our infrastructure managed account.

Offsetting the gross AUM contributions, resulting in a flat fee, earning AUM growth within our sma's.

This is consistent with the expectations, we set out on our previous earnings call and represents a relatively low fee paying mandate.

We had a record breaking quarter on two important operating metrics.

Michael Kim: First, we increased our undeployed fee earning capital, or UFEC, to over $21 billion, our highest level ever, which points to the future earnings power of Stepstone. This increase comes from strong SMA fundraising, particularly re-ups alongside some of our longstanding relationships. Our $21 billion UFEC includes $2.4 billion of commingled funds that are already raised and will be activated over the coming quarters, including $1.5 billion in our VC Secondaries Fund, which we anticipate activating in the middle of this calendar year, and approximately $900 million in our Real Estate Secondaries Fund, which will come off the fee holiday at the beginning of March. Additionally, we generated over $300 million of inflows this quarter on our private On the basis of this success, along with feedback from our distribution partners, we launched our infrastructure product, Strux, this past fall.

We increased our unemployed fee, earning capital are you effect to over $21 billion.

Our highest level ever which points to the future earnings power of steps down.

This increase comes from our strong SMA fundraising, particularly re ups alongside some of our longstanding relationships.

Our $21 billion you effect includes $2 $4 billion of commingled funds that are already raised and will be activated over the coming quarters, including $1 $5 billion at RBC Secondaries fund, which we anticipate activating in the middle of this calendar year and approximately $900 million in our real estate secondaries.

Fun, which will come off fee holiday at the beginning of March.

Second we generated over $300 million of inflows this quarter on our private wealth platform.

On the grounds of this success along with feedback from our distribution partners, we launched our infrastructure products trucks. This past fall and as Scott mentioned, we recently filed <unk> a private credit fund we expect to activate later this year.

Michael Kim: And, as Scott mentioned, we recently filed CredEx, a private credit fund we expect to activate later this year. Slide 9 shows the evolution of our management and advisory fees. We generated a blended management fee rate of 58 basis points over the last 12 months, higher than 54 basis points for the last fiscal year as we benefited from retroactive fees.

Slide nine shows the evolution of our management and advisory fees.

Generation, a blended management fee rate of 58 basis points over the last 12 months.

And the 54 basis points for the last fiscal year as we benefited from retroactive fees.

Michael Kim: We produced over $4.90 per share in management advisory fees over the last 12 months, representing an annual growth rate of 22% since fiscal year 2019, and generated an FRE margin of 33% for the quarter, which also includes the benefit from retroactive fees. As a reminder, we expect our FRE margins will continue to expand from a combination of operating leverage and strategic cost-saving opportunities. We executed on one such initiative this past quarter with the sale of our non-core subsidiary, Greenspring Backoffice Solutions, or GBOF. We acquired GBOSS as part of the Greenspring acquisition in 2021. GBOS was the fund administration platform for our venture capital funds as well as a select number of third-party VC funds. We sold G-Boss to the team, who will continue to run the business, now branded Viridis, and will service our VC funds as our third-party administrator consistent with our operating model.

We produced over $4 90 per share and management advisory fees over the last 12 months, representing an annual growth rate of 22% since fiscal year 2019.

We generated an FRE margin of 33% for the quarter, which also includes the benefit from retroactive fees.

As a reminder, we expect our FRE margins will continue to expand from a combination of operating leverage and strategic cost saving opportunities.

We executed on one such initiative this past quarter with the sale of our noncore subsidiary Green Spring back office solutions or G boss.

We acquired G boss as part of the Green Spring acquisition in 2021.

G Boss was the fund administration platform for our venture capital funds as well as a select number of third party VC funds.

We saw a G boss to the team.

We will continue to run the business now branded <unk> and.

And we will service our VC funds as our third party administrator consistent with our operating model.

Michael Kim: The run rate net benefit from this transaction is expected to increase fee-related earnings by $2 million annually. Before handing the call to David, I would like to take a moment to discuss the structure and timeline of the buy-in of the non-controlling interests mentioned by Scott earlier. We filed an 8K this afternoon, which includes the full transaction agreement, but I'll outline a few of the key points. As you are likely aware, Stepstone currently owns 100% of our private equity business and roughly 50% of the infrastructure, private debt, and real estate asset class.

The run rate net benefit from this transaction is expected to increase fee related earnings by $2 million annually.

Before handing the call to David I would like to take a moment to discuss the structure and timeline of the buy in of the Noncontrolling interest as mentioned by Scott earlier.

We filed an 8-K this afternoon, which includes the full transaction agreement, but I will outline a few of the key points.

As you are likely aware step stone currently owns 100% of our private equity business and roughly 50% of the infrastructure private debt and real estate asset classes. The.

Michael Kim: The agreement we announced today pre-wires a systematic buy-in of the interests that Stepstone does not own over the coming years. We deliberately structured this as a gradual exchange to ensure our teams remain incentivized to grow their asset class. The primary consideration for these buy-ins will be Stepstone equity, thereby maintaining an important alignment of interest with a smaller portion in cash.

The agreement, we announced today pre wire is a systematic buy in of the interests such steps zone does not own over the coming years.

We deliberately structured this as a gradual exchange to ensure our team has remained incentivized to grow their asset classes.

The primary consideration for these buy ins will be steps down equity, thereby maintaining an important alignment of interest with a smaller portion in cash.

Michael Kim: The first exchange is expected to take place this summer, subject to customary closing conditions, and will account for approximately one-tenth of the 50% of the business owned by the infrastructure, private debt, and real estate team. We plan to execute subsequent buy-ins of approximately equivalent size each year, with the option to accelerate the remaining full exchange after five years if mutually agreed. As Scott mentioned, each exchange will occur on an accretive basis, with each buy-in occurring at a discount to the prevailing step multiple. As a result, the rate of growth of income attributable to NCI should begin to slow and eventually go away as we accumulate full ownership.

The first exchange is expected to take place this summer subject to customary closing conditions and will account for approximately 110th of the 50% of the business owned by the infrastructure private debt and real estate teams.

We plan to execute subsequent buy ins of approximately equivalent size each year with the option to accelerate the remaining full exchange after five years if mutually agreed.

As Scott mentioned, each exchange will occur on an accretive basis with each buying occurring at a discount to the prevailing step multiple.

As a result, the rate of growth of income attributable to NCI should begin to slow and eventually go away as we accumulate full ownership.

David Park: I'd now like to pass the call over to our recently appointed Chief Financial Officer, David Park. We've had the pleasure of working with David side-by-side as our Chief Accounting Officer since 2019.

I'd now like to pass the call over to our recently appointed Chief Financial Officer, David Park, We've had the pleasure of working with David side by side as our Chief Accounting Officer since 2019, David.

David Park: Thank you, Mike. And I look forward to having the opportunity to work with all of you in the investment community. I'd like to turn your attention to slide 11 to speak to our financial highlights. For the quarter, we earned management and advisory fees of $152 million, up 18% from the prior year quarter. The increase was driven by growth in B&E AUM across commercial structures, as well as $8.6 million in retroactive fees. Fee-related earnings were $50.7 million for the quarter, up 19% from a year ago. We generated an FRE margin of 33% for the quarter, up 250 basis points sequentially and consistent with the prior year period. Moving to expenses, total cash and equity-based compensation expense was $74 million, down $1 million from the prior quarter.

Thank you, Mike and I look forward to having the opportunity to work with all of you in the investment community.

I'd like to turn your attention to slide 11 to speak to our financial highlights.

For the quarter, we earned management and advisory fees of $152 million.

Up 18% from the prior year quarter. The increase was driven by growth in AUM across commercial structures, as well as $8 $6 million and retroactive fees.

Fee related earnings were $50 7 million for the quarter up 19% from a year ago, we generated an FRE margin of 33% for the quarter up 250 basis points sequentially and consistent with the prior year period.

Moving to expenses total cash and equity based compensation expense was $74 million down $1 million from the prior quarter. The decline was primarily driven by adjustments to our cash bonus accrual in connection with our annual bonus cycle.

David Park: The decline was primarily driven by adjustments to our cash bonus accrual in connection with our annual bonus cycle. Looking ahead to our fiscal fourth quarter, while the sale of GBOS, which closed on December 31st, will result in compensation savings, we expect to see an increase in overall compensation expense from our fiscal third quarter due to merit increases taking effect on January 1st. General administrative expenses were $27 million, and $4 million sequentially.

Looking ahead to our fiscal fourth quarter, while the sale of <unk>, which closed on December 31 will result in compensation savings, we expect to see an increase in overall compensation expense from our fiscal third quarter due to merit increases taking effect on January one.

General and administrative expenses were $27 million.

$4 million sequentially.

David Park: Included in this quarter were expenses associated with our Stepstone 360 Private Markets Conference. We will host our annual Venture Capital Conference later this month, so we expect to see a similar level of expenses in the next quarter. As a reminder, our G&A expenses tend to be seasonally highest in our fiscal third and fourth quarters due to these annual investor conferences. Gross realized performance fees were $33 million for the quarter, up $14 million from last year and $26 million from the prior quarter.

Included in this quarter were expenses associated with their steps on 360 private markets conference. We will host our annual venture capital Conference. Later this month, so expect to see a similar level of expenses in the next quarter.

As a reminder, our G&A expenses tend to be seasonally highest in our fiscal third and fourth quarters due to these annual investor conferences.

Gross realized performance fees were $33 million for the quarter up $14 million from last year and $26 million from the prior quarter.

David Park: This period's performance fees reflect $15 million of realized carry and $18 million of incentive fees. Unlike Cary, for which investment realizations drive the timing of revenue recognition, most of our incentive fees crystallize annually. The $18 million of incentive fees includes $9 million for spring, with the remainder from private equity and infrastructure mandates.

This period's performance fees reflect $15 million of realized carry and $18 million of incentive fees.

Unlike Kerry for which investment realizations drive the timing of revenue recognition most of our incentive fees crystallized annually.

$18 million of incentive fees includes $9 million for spring with the remainder from private equity and infrastructure mandates.

David Park: Our fiscal second and third quarters tend to be seasonally stronger for incentive fees in periods of positive market appreciation, given spring's annual crystallization in our fiscal third quarter, as well as other mandates that are recognized in these periods. In terms of performance fee-related compensation, comp tied to our private equity funds has a roughly 50% payout ratio, while compensation related to our private wealth funds tends to have a higher payout ratio. Moving to slide 12, management and advisor fees per share grew 18% for the year-to-date period and 22% over the long-term period since fiscal 2019. Gross realized performance per share was down 56% for the year-to-date period and up 11% over the long-term period. Adjusted revenue per share was flat for the year-date period as growth and management advisor fees largely offset the decline in performance fees. However, over the long term, adjusted revenue per share was up 20%.

Our fiscal second and third quarters tend to be seasonally stronger for incentive fees in periods of positive market appreciation given springs annual crystallization in our fiscal third quarter as well as other mandates that are recognized in these periods.

In terms of performance fee related compensation comp tied to our private equity funds have been roughly 50% payout ratio while compensation related to our private wealth funds tends to have a higher payout ratio.

Moving to slide 12 management and advisory fees per share grew 18% for the year to date period and 22% over the long term periods since fiscal 2019.

Gross realized performance fees per share were down 56% for the year to date period and up 11% over the long term period.

Adjusted revenue per share was flat for the year to date period as growth in management and advisory fees, largely offset the decline in performance fees.

Over the long term period adjusted revenue per share was up 20%.

David Park: Shifting to profitability on slide 13, we grew FRE per share by 17% in our first three quarters. The increase was primarily driven by growth in management and advisory fees. Looking over the longer term, we have generated an annual growth rate in FRE per share of 29%. Year-to-date ANI per share is down relative to last year driven by lower performance fees, but it has increased at an annual rate of 24% over the longer term. Moving to key items on the balance sheet, on slide 14, net accrued carry finished the quarter at $569 million, up 6% from a year ago, driven primarily by underlying valuation appreciation. As a reminder, our crew carry balance is reported on a one quarter lag. Our own investment portfolio ended the quarter at $188 million.

Shifting to profitability on slide 13, we grew FRE per share by 17% in our first three quarters. The increase was primarily driven by growth in management and advisory fees.

Looking over the longer term, we have generated an annual growth rate in FRE per share of 29%.

Year to date NII per share is down relative to last year, driven by lower performance fees, but has increase in it.

Annual rate of 24% of the long term period.

Moving to key items on the balance sheet on slide 14, net accrued carry finished the quarter at $569 million.

Up 6% from a year ago, driven primarily by underlying valuation appreciation.

As a reminder, our accrued carry balance is reported on a one quarter lag.

Our own investment portfolio ended the quarter at $188 million.

David Park: Unfunded commitments to our investment programs were $96 million as of quarter end. Our pool of Performance Fee Eligible Capital has grown to over $70 billion, and this capital is widely diversified across multiple vintage years and over 200 programs. Seventy-five percent of our net unrealized carry is tied to programs with vintages of 2018 or earlier, which means that these programs are largely out of their investment periods and in harvest mode. Of this amount, 53% is 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.

Unfunded commitments to our investment programs were $96 million as of quarter end.

Our pool of performance fee eligible capital has grown to over $70 billion.

And this capital is widely diversified across multiple vintage years and over 200 programs.

75% of our net unrealized carry is tied to programs with vintages of 2018 or earlier, which means that these programs are largely out of their investment periods and in harvest mode.

Of this amount 53% is sourced from vehicles with deal by deal waterfalls meeting 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.

Operator: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your touchtone telephone. Again, to ask a question, please press star 1-1.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your Touchtone telephone again to ask a question. Please press star one.

Operator: One moment for our first question. Our first question comes from the line of Kenneth Worthington of J.P. Morgan, your line of, "Hi, good afternoon, thanks for taking the question." First, on the SMAs, so 1.1 billion were made into commitments in the fee-paying AUM. If I heard you correctly, I think you said $4.3 billion of fundraiser, uh... that would eventually be fluent if you paid him over time. So maybe first, you entered the quarter in SMAs, I think, with $56.7 billion of SMA fee-paying AUM. How big is the total asset pool that's going to migrate into fee-paying AUM over time? And I guess over what period would you expect that migration to take place?

One moment for our first question.

Our first question comes from the line of Kenneth Worthington of JP Morgan Your line is open.

Hi, good afternoon, thanks for taking the question.

First on the Sma's.

So.

$1 1 billion made it into commitments into fee paying AUM. If I heard you correctly I think you said $4 3 billion of fund raising that.

That would eventually flow into fee paying AUM over time. So maybe first you ended the quarter.

SMA is I think with $56 7 billion.

SMA fee paying AUM, how big is the total asset pool, that's going to migrate into fee paying AUM over time, and I guess over what period would you expect that migration to take place I guess, that's where I like to start.

Scott Hart: I guess that's where I'd like to start. Sure. Thanks, Ken, for the question. This is Scott.

Sure. Thanks, Ken for the question. This is Scott So a couple things in there I think one.

Scott Hart: So, you know, a couple things here. One, just thinking about what we think was a very successful quarter from a fundraising standpoint across our SMAs, which, as Mike touched on, was largely driven by strong re-up activity across our client base, as well as some new client additions as well. As we think about how much of the current undeployed Fearing Capital will convert into Fearing AUM over time, it's really, you know, largely driven by the $21 billion of UFEC Mike referenced. Of that, about two and a half is in commingled funds that will activate over the next couple of quarters. The majority of the rest of that undeployed Fearing Capital is in the form of separate accounts. As a reminder, our separate accounts tend to pay on invested or deployed capital, whereas the commingled funds tend to pay on committed capital.

Just thinking about what we think was a very successful quarter from a fundraising standpoint across our SMA is that as Mike touched on was it was largely driven by strong rehab activity across our client base as well as some new client additions as well as we think about how much.

Of the current and deploy capital will convert into fee, earning AUM over time.

Largely driven by the $21 billion of you fact, Mike referenced of that about two and a half is in commingled funds that will activate.

Over the next couple of quarters.

The majority of the rest of that unemployed for any capital is in the form of separate accounts as a reminder, our separate accounts tend to pay on invested or deployed capital, whereas the co mingled funds tend to pay on committed there would be some commingled funds in that number but largely driven by separate accounts and we'd be consistent in our.

Scott Hart: There would be some commingled funds in that number, but largely driven by separate accounts. And, you know, we'd be consistent in our sort of guidance around how to think about the deployment of those vehicles. We've always talked about it being deployed over a three- to five-year time period, and that continues to be consistent today. Thank you. And I haven't made it through the 8K, so I apologize if this is in here.

Through guidance around how to think about the deployment of those vehicles, we've always talked about it being deployed over a three to five year time period and that continues to be consistent today.

Okay. Thank you and haven't made it through the 8-K. So apologize if this is in here. So on the buyout of the NCI for real estate and for real.

Scott Hart: So, on the buyout of the NCI for real estate and credit, you said one-tenth of the 50% goes this summer. What is the cadence of... the continuation of that buyout? Is it one-tenth a year? Is it happening every quarter?

And credit.

You said, one 110th of the 50% goes this summer.

It is the cadence of.

The continuation of that buyout is at one.

110th year or is it happening every quarter.

What is the cadence of what we should expect and when does that sort of wrap up.

Scott Hart: Like, what is the cadence of what we should expect and when does that sort of wrap up? Sure. So the cadence will be one-tenth per year over the next five years to start. There will be, after five years, the potential to accelerate the buy-in of the remaining interest if mutually agreed, but otherwise, it would continue on and essentially be done over a 10-year period, with one exception, which is that the infrastructure could be done over a 15-year period. So, yes, all that detail laid out in the transaction agreements, which, as you pointed out, we wouldn't have had time to review in any detail at this point in time. But that will happen on an annual basis with the potential to accelerate after five years. Otherwise, the base case is being done over 10 years. Great, congrats on getting that done, and thanks for taking my question. Thanks very much.

Sure. So the cadence will be at $1 <unk> per year over the next five years to start there will be after five years the potential to accelerate the buying of the remaining interest if mutually agreed but otherwise would continue on.

And essentially be done over a 10 year period with with one exception, which is that infrastructure could be done over a 15 year period. So yes. So all of that detail laid out in the transaction agreement, which as you pointed out we wouldn't have had time to review in any detail at this point in time, but that will happen on an annual basis.

With the potential to accelerate after five years, otherwise base cases being done over 10 years okay.

Okay, great congrats on getting that done and thanks for taking my questions.

Very much thank.

Thank you one moment please.

Operator: Thank you. Our next question comes from the line of Ben Budish of Barclays, Yolanda. Hi, good evening, and thanks for taking the question. Maybe first, can you unpack a little bit more the incentive fee dynamic? I think that the number was probably a bit higher than most of us were expecting.

Our next question comes from the line of Dan <unk> of Barclays. Your line is open.

Hi, good evening and thanks for taking the question maybe first can you unpack a little bit more of the incentive fee dynamic I think the number was a bit probably a bit higher than most of us were expecting that was very helpful color on the spring.

David Park: It was a very helpful color on the S-prime contribution versus the other pieces, but can you maybe just talk a little bit more about what that cadence should look like going forward? Obviously, it will be somewhat contingent on performance, but how should we sort of think about that, just given this was obviously quite a good quarter for that, and what should we sort of be thinking through on a yearly basis, if you can kind of help there? Yeah, Ben, this is David.

Contribute with S prime contribution versus.

Versus the other pieces, but can you maybe just talk a little bit more about what that cadence should look like going forward, obviously, it'll be somewhat contingent on performance, but how should we sort of think about that just given this is a was it was obviously quite a good quarter for that and what should we sort of.

I think it'd be thinking through for the next.

Yearly basis, if you can kind of help there.

Yes, Ben this is David Thanks for the question.

David Park: Thanks for the question. Our incentive fees are generally tied to programs that either sit outside of Stepstone Vehicles or our private wealth funds. So really, they tend to crystallize annually, and they're really in our second and third fiscal quarters. So if you think about it, spring was roughly half of the $18 million. And as the fund grows, you can imagine the incentive fee growing in the fiscal third quarter as well. But, you know, again, typically, you should expect some modest incentive fees over the next couple of quarters. But the second and third quarters should typically be the strongest.

Our incentive fees are generally tied to programs.

Sit outside of steps from vehicles or.

Our private wealth funds, so really they tend to crystallize annually and they're really in.

Our second and third fiscal quarters.

So if you think about spring was roughly half of the $18 million and as the.

Fund grows you can imagine.

The incentive fee growing in the fiscal third quarter as well.

<unk>.

Again typically.

You should expect some modest incentive fees over the next couple of quarters, but the second and third quarter should typically be the strongest.

Jason Ment: Okay, that's helpful. And then maybe one strategic question sort of on the retail side. With S Prime, you were one of the first to market with a sort of broad private markets vehicle. You know, I think versus at least the other public companies we all look at who are a bit bigger and tend to be more concentrated on the wires, you do have a bit of a different distribution strategy. But just any thoughts on competitiveness with a private credit fund? It seems like there are more maybe options in the market. But at the same time, you've got some differentiated distribution through the RIA channel, which is maybe a little bit less contested. But just how are you feeling about the competitive environment for that product specifically, just given there are already some other incumbents out there with an offering? Thanks, Ben. This is Jason.

Okay. That's helpful.

And then maybe one strategic question sort of on the retail side with S. Prime you were one of the first to market with a sort of broad like private markets vehicle.

I think versus at least the other public companies. We all look at who are a bit bigger and tend to be more concentrated in the wires you do have a bit of a different distribution strategy, but just any thoughts on the competitiveness with a private credit fund. It seems like there are more maybe options in the market, but at the same time, you've got some differentiated the distributions through like the RIAA channel, which is maybe a little bit less contested but just.

How are you feeling about sort of the competitive environment for that product specifically just given there are already some other incumbents out there with an offering.

Thanks, Ben this is Jason.

So as you think about where we are going to have.

Jason Ment: So as you think about where we are going to... have a competitive edge in the private wealth channels. The credit fund that we are bringing is a multi-manager vehicle, and that compares very favorably in our minds relative to the single manager vehicles, the private BDCs, and the like that are out there. In private credit, there is a performance benefit through diversification through the number of loans and the number of managers, and we've got white paper research out there on that point. And there's also a benefit from being able to scale deployment with an open architecture model. And so relative to the single manager BDCs, we think we've got space. There are very few comps out there in terms of the multi-manager, though there is one out there that's quite prevalent.

Have competitive edge in the private sorry.

Sorry.

The private wealth channels.

The credit fund that we are bringing is a multi manager vehicle and that compares very favorably in our mind relative to the single manager vehicles, the private bdcs and the like that are out there.

In private credit there is a performance benefit through diversification through number of loans and number of managers and we've got white paper research out there on that point.

And there is also a benefit from being able to scale deployment.

With.

An open architecture model and so relative to the single manager Bdcs, We think we've got.

We've got space there is very few.

Comps out there in terms of the multi manager, though there is one out there that that's quite prevalent.

Jason Ment: What we've done to differentiate there is that CredEx will be a blend of direct lending and specialty credit, as opposed to a pure play direct lending or pure play specialty credit fund. Okay, got it. Thank you very much for taking the question. Thank you. One moment, please. Our next question comes from the line of Michael Cyprys of Morgan Stanley, a line of, " Great, thank you. Good afternoon.

We have done to differentiate there is that <unk> will be a blend of direct lending and specialty credit as opposed to a pure play direct lending or pure play specialty credit.

Todd.

Okay got it thank you very much for taking the questions.

Thank you one moment please.

Our next question comes from the line of Michael <unk> of Morgan Stanley. Your line is open.

Operator: Congratulations on the NCI buy-in announcement. That's great to see. Maybe just to start there, maybe you could talk a little bit about how you approached the valuation dynamics with the buy-in. What sort of mix of stock and cash can we expect to see? Any particular lockups on the stock portion? And what's the sort of expected magnitude of accretion?

Great. Thank you good afternoon, congrats on the NCI by an announcement that's great to see maybe just to start there maybe you could talk a little bit about how you approached valuation dynamics, what to buy and what sort of mix of stock and cash can we expect to see any particular lockups on the stock portion and what's the sort of X.

Magnitude of accretion thanks.

Scott Hart: Thanks. So, Mike, maybe I will start there, with Scott, and then hand it off to Mike McCabe to touch on a part of the question as well.

Yes, so Mike maybe I will start there. This is Scott and then hand, it off to Mike Mccabe to touch on and part of the question.

Scott Hart: But, first of all, thanks for the comment there and the congratulations. We're quite excited about it, as are our teams here. So, look, the way that we approach the valuation and really the way that we're able to deliver on what we have suggested all along to you and our public shareholders to deliver an accretive transaction with the structure of the valuation at a discount to the Stepstone trading multiple. It'll be on a sliding scale depending on exactly where it is that we are trading as a firm at that time. But that's clearly a big part of locking in an accretive transaction.

Well, but first of all thanks for the comment there and congratulations we're quite excited about it as our teams here. So look the way that we approach the valuation.

And really the way that we're able to deliver on what we have.

<unk> said, all along to you on our public shareholders to deliver accretive and accretive transaction with the structured evaluation at a discount to the step stone trading multiple it'll be on a sliding scale, depending on exactly where it is that we are trading as a firm at that at that time, but that's clear.

A big part of locking in an accretive transaction I'll, maybe hand, it to Mike to talk through just how you ought to think about.

Michael Kim: I'll maybe hand it to Mike to talk through just how you ought to think about sort of the second half of your question there. We're very excited about this, as we announced at our IPO and our investor day in June of last year that this was a priority, and we've reached a stage of scale and team and global footprint across our platform where it made sense to proceed with this mechanism. As Scott mentioned, the buy-in of the NCI will be done at a discount to the prevailing step multiple, and back to Ken's question earlier, it will be done at a cadence of once per year. And just the way the mechanism works is that the larger the multiple that Stepstone is trading at, the greater the discount. That's the sliding scale that Scott mentioned.

After the second half of your question there.

Great. Thanks, Scott Thanks, Mike.

We're very excited about this as we announced on our IPO and at our Investor Day in June of last year. This was a priority and we've kind of reached a stage of scale and team and global footprint across our platform, where it made sense to proceed with this mechanism as Scott mentioned the buying of the NCI will be.

Done at a discount to the prevailing step multiple and back to Ken's question earlier, it will be done at a cadence of once per year.

And then just the way the mechanism works is the larger the multiple that step down is trading at the greater the discount that's the sliding scale that Scott mentioned you can go into the transaction agreement and can drive a little more detail, but for the purposes of this call. The range of discount you should expect based on where we're trading it could be.

Scott Hart: You can go into the transaction agreement and kind of dribble a little more detail, but for the purpose of this call, the range of discount you should expect based on where we're trading could be anywhere between 10% to 30% of Stepstone's prevailing multiple at the time. In terms of other aspects of the transaction agreement, I would encourage you to go into the document and of course follow up with Seth Weiss with any granular detail after that. And sorry, maybe to just touch on one part of your question that I skipped over. I mean, the cash and stock component, I mean, you should think about the cash being somewhere in the 10 to 20 percent range, really with the remainder in the form of stock, and there will be transfer restrictions on that that would allow the team to sell, you know, about a third a year over the first three years, which has been a consistent approach we've used in the IPO, the Greenspring sale, et cetera. Great.

Anywhere between 10% to 30% of step stones prevailing multiple at the time.

In terms of other aspects of the transaction agreement I would encourage you to go into the document and of course follow up with Seth Weiss with any granular detail after that.

And sorry.

Maybe can you just touch on one part of your question that I skipped over I mean, the cash and stock component you should think about the cash being somewhere in the 10% to 20% range really with the remainder in the form of stock and there will be transfer restrictions on that that would allow.

Allow the team to.

To sell about a third a year over the over the first three years, which has been a consistent approach we've used in the IPO the green spring sale et cetera.

Michael Kim: Thanks for the details there. Maybe just a follow-up question on the FRE margin. Nice to see the 33% in the quarter here.

Great. Thanks for the details there maybe just a follow up question on the FRE margin nice to see the 33% in the quarter here.

Michael Kim: And just given some of the changes that you made with selling off the fund admin business, I wonder if there are any other changes as well. Maybe you could just speak to the outlook for the FRE margin into the March quarter and also into your fiscal 25. Do you think we're clearly above 30% on a quarterly basis going forward? And then, with the minority buy-in, how does that impact the FRE margin profile over time, as I believe the subs operate with a higher margin? What sort of uplifts can we see from that?

Given some of the changes that you've made with selling off the fund admin business I Wonder if there are any other changes as well that you could just speak to the outlook for FRE margin into the March quarter and also into your fiscal 'twenty. Five do you think we are clearly above 30% on a quarterly basis going forward and then with the minority buy and how does that impact the FRE margin profile over time as I believe the subs operate with a high.

Here margin, what sort of uplift can we see from that overtime.

Michael Kim: So, Mike, again, as we've talked, we've really prioritized investing in the business for growth over time, and our investment in the Pride Wealth platform is one such example. Technology and other areas, as well as our global footprint, have been key priorities for us to invest in. But we feel we have largely invested in the platform across the organization and expect to see margin expansion through a combination of operating leverage, as well as some other efficiencies that we think we can capture across the organization. But maybe I'll ask David to comment a little bit on some detail there. Yeah, thanks, David here. If you look at our, you know, compensation is clearly the largest expense line item.

So Mike again, as we've talked we really prioritize investing in the business for growth over time and our investment in the private wealth platform is one such example technology and other areas as well as our global footprint of <unk> key priorities for us to invest but we feel we have largely invested in the platform across and across the organization and expect.

To see margin expansion through a combination of operating leverage as well as as well as some other efficiencies that we think we can capture across the organization, but maybe I'll ask David to comment a little bit on some detail there.

Thanks.

David Here, if you look at our compensation is clearly the largest expense line item and we did have some favorability this quarter if you normalize.

David Park: And, you know, we did have some favorability this quarter; if you normalize for the bonus accrual adjustment, you can think about the run rate as roughly $75 million. And looking into next quarter, if you layer on merit increases that took effect on January 1, you should largely get there. You know, looking over time, I think the way we look at it is more as a total comp, cash and equity comp, as a percentage of fee revenues. And it has trended in the low 50% range over the last couple of years.

For the bonus accrual adjustment you can think about run rate as roughly $75 million and looking into next quarter.

You layer on merit increases that took effect on January 1st you should largely get there.

Looking over.

I think the way we look at it is more on a total comp.

Cash and equity comp as a percentage of fee revenues and it's trended in the low 50% range over the last couple of years.

David Park: And, you know, we, while this may move, you see some movement quarter to quarter, but, you know, we do expect this ratio to trend down gradually over time. Some of the, I guess, movement you're going to see is going to be due to the timing of convenial fundraising. But again, over time, we do expect effort margins to trend down over time.

We well this may move you should see some movement quarter to quarter, but we.

We do expect this ratio to trend down gradually over time.

The I.

I guess a movement, you're going to see is going to be due to timing of commingled fundraising, but again over time, we do expect our FRE margins to trend down over time.

Michael Kim: And maybe to follow up on the second part of your question there, you know, as the buy-in occurs over time, again, we report FRE on a consolidated basis, so don't expect to see margin expansion through these buy-ins per se. But again, I think it ties back to the broader comment about how as we scale up broadly as an organization, we should expect to see some operating leverage continue to kick in and add to FRE. Oh, great, thank you.

And maybe to follow up on your second part of your question there as the buying occurs over time again, we reported FRE on a consolidated basis. So don't expect to see margin expansion through these buy ins per se, but again I think it ties back to the broader comment about as we scale up.

As an organization, we should expect to see some operating leverage continue to kick in at Ed FRE.

Okay.

Great. Thank you.

Operator: Thank you. Our next question comes from Alexander Bloskine of Goldman Sachs in Illinois. Hey, everybody.

Thank you ma'am.

Our next question comes from Alexander <unk> of Goldman Sachs. Your line is open.

Hey, everybody good evening.

Operator: Good evening. Just another quick follow up on the transaction. Mike, can you clarify if you guys are buying all of the earnings, or you just buy an FRE, or you do an FRE and carry? And how, if at all, will compensation dynamics at the existing subs change, if at all, for folks that work there? So would they start getting more equity in Stepstone? Does anything change in the carry payout, anything like that?

Just another quick follow up around the around the transaction.

Can you clarify if you guys are buying all of the earnings are you just buying FRE or are you doing FRE and carry and how if at all will compensation dynamics at the existing subs or the real estate and debt.

How would the compensation change if at all for folks that work there. So what they start getting more equity in step stone does anything change in like the <unk> in the <unk>.

Kerry pay out anything like that.

Michael Kim: Sure. I'll start with the first part of your question and maybe invite Scott to make a few comments as well. But yes, the buy-in is all cash flows, FRE as well as PRE. So it's management fees as well as performance fees. And given the episodic nature of how performance fees work, that was really what led to the thesis behind taking a longer-term, gradual approach so that we have its cadence of a series of buy-ins that will happen over a period of time, which would smooth out some of the ebbs and flows that we find in performance fees.

Sure.

Maybe I'll start with the first part of your question and maybe invite Scott to layer on a few comments as well, but yes, what we did to buy in is all cash flows FRE as well as PRA, So management fees as well as performance fees and given the episodic nature of how performance fees work that was really what led to the thesis behind taking a longer term grab.

<unk> approach so that we have it's the cadence of the series of buy ins that will happen over a period of time, which should smooth out some of the ebbs and flows that would be fine and the performance fees and also as Scott mentioned.

Michael Kim: And also, as Scott mentioned, the buy-in will be largely equity to just foster that important alignment of interest with some cash. But as far as the underlying compensation to the teams is concerned, maybe I'll invite Scott to share a thought. Sure. So there will be no real change, for example, to how Cary is treated, as Cary will continue to go 50% to the team, 50% to the house.

<unk> will be largely equity to just foster that important alignment of interest with some some cash but as far as the underlying compensation to the teams is concerned maybe I'll I'll invite Scott to share our thought sure. So no no real change for example to how carry is treated as Cary will continue to go 50% of the team 50%.

<unk>.

Two two to the house, obviously that the ownership of that will change over time I think the biggest change from a compensation structure standpoint is the ability the ability to add inc.

Scott Hart: Obviously, the ownership of that will change over time. But I think the biggest change from a compensation structure standpoint is the ability to increasingly utilize StepStone, RSUs, and stock as a component of one's compensation, consistent with the approach that we've taken across our team since the IPO. And so going forward, particularly for the investment team, we'll now have multiple levers to pull on components of stock between base, bonus, carried interest, as well as RSUs. Gotcha, great, thanks for that.

Increasingly utilize.

<unk> use in stock as a component of one's compensation consistent with the approach that we've taken a really across our team since the IPO and so going forward, particularly for investment team have now multiple.

<unk> levers to pull or components of stock between base bonus carried interest as well as ours use.

I gotcha, great. Thanks for that.

Scott Hart: My second question about the secondary business, it seems to be quite active, and the momentum and the market continue to sort of build there for many reasons we talked about. Can you help us frame how much of the $21 billion of capital that's not paying fees yet is sitting in secondary strategies, and when it relates to those specifically, should we expect a little bit of a faster pace of deployment relative to maybe what we've seen in the past given the recent market? Yeah, thanks Alex for the question. I mean, we've never provided, you know, an exact breakout of the undeployed fear and capital by either strategy or asset class. But what I would tell you is when we think about the two and a half billion dollars of commingled funds that will activate shortly, those are entirely secondary funds between our venture capital secondaries fund and our special situation real estate secondaries fund.

My second question around the secondaries business it seems to be quite active and the momentum in the market continues to sort of build therefore for many reasons. We've talked about can you help us frame how much of the $21 billion of capital that's not paying fees yet is sitting in secondary strategies and when it relates to those spin.

Typically should we be expect a little bit of a faster pace of deployment relative to maybe what we've seen in the past given recent market dynamics.

Yes. So thanks, Alex for the question I mean, we've never provided an exact breakout of the unemployed fee, earning capital by either strategy or asset class.

What I would tell you is when we think about the two $5 billion of.

Commingled funds that will activate shortly.

Those are entirely.

Secondary fund between our venture Capitals Secondaries fund in our special situations real estate Secondaries fund, but the activation of those will be less driven by sort of that's a.

Scott Hart: But the activation of those will be less driven by sort of, you know, the sort of rapid deployment that you talked about. It will be driven by the fee holiday on the real estate fund, which will expire in early March here, as well as the completion of the investment in the prior venture secondaries fund, which again, we expect sometime in the middle of this calendar year. As we think about what remains in that undeployed fear capital number, again, we haven't haven't ever provided an exact breakdown. But secondary is not as meaningful of a component of the undeployed fear and capital relative to some of our co-investment and primary strategies today. I got you. That's an awful color.

Rapid deployment that you talked about it will be driven by the fee holiday on the real estate fund, which will expire in early March here as well as the completion of the investment of the prior venture Secondaries Fund, which again, we expect sometime middle of this of this calendar year as.

As we think about what remains in that unemployed fee, earning capital number again Havent Havent never provided an exact breakdown.

But secondary is not as meaningful of a component of the unemployed capital relative to some of our co investment in primary strategies today.

Got you that's helpful color. Thank you.

Operator: Thank you. Thank you. One moment, please. Our next question comes from the line of Adam Beatty of UBS. Your line is open. Thank you and good afternoon.

Thank you one moment please.

Our next question comes from the line of Adam Beatty of UBS. Your line is open.

Alright, Thank you and good afternoon.

Operator: A couple of questions on the NCI buy-in. Great to see, you know, the structure laid out and, you know, kind of the culmination of that, you know, sort of long-term process. So just wondering if there are any contingencies around the performance of the teams in any way, just either around timing or amount or valuation. And also, a quick clarification around the potential acceleration after five years. Is that like an all or nothing kind of scenario, or could it be sort of accelerated without necessarily completing the process?

Couple of questions on the NCI by and great to see the structure laid out in and kind of the culmination of of that sort of a long term process.

So just wondering if there are any contingencies around the performance of the teams in any way just either around timing or amount or evaluation.

And also a quick clarification.

Around the potential acceleration after five years is that like an all or nothing kind of scenario or could it be sort of accelerated without necessarily competing completing the process.

Michael Kim: So it'd be great to get some color and some details and also, maybe if you could, whether or not you would, to the extent that you did more M&A in the future, whether you would look to have a similar structure or something different. Thanks. Yeah, thanks Adam for the questions there. So maybe, taking them in order, you know, is there a performance-related component to it?

So it would be great to get some color and some detail and also maybe if you could whether or not you would to the extent that you did more M&A in the future whether you would work to have a similar structure or something different.

Yes, thanks for the questions. There so maybe taking them in order is there a performance.

Related component to it the main part of that is the financial performance of the businesses, which will ultimately drive.

Michael Kim: The main part of that is the financial performance of the businesses, which will ultimately drive the value of those businesses over time. And so, you know, really, our view there is that we've come up with a structure that will continue to incentivize those teams to grow their businesses over time. And to the extent they're able to or successful in doing that, they will benefit from that performance. On your second question around the acceleration, you know, really any time after the five-year point, if we were to mutually agree to accelerate, that would result in a complete buyout, where we would own 100 percent of the relevant asset class. It doesn't have to be all or nothing in the sense that you may have one asset class where we mutually agree to accelerate, but not all three.

The value of those businesses over time and so.

<unk>.

Really our view there is we've come up with a structure that will continue to incentivize those teams to grow their businesses over time and to the extent, they're able to we're successful in doing that.

They will they will benefit from that that performance.

On your second question around the acceleration.

Really anytime anytime after the five year point, if we were to mutually agreed to accelerate that would result in the.

The complete buyout to where we would own 100% of the relevant asset class. It doesn't have to be all or nothing in a sense that you may have one asset class, where we mutually agreed to accelerate but not all three but at that point in time. If there was an acceleration. It would result in us owning 100% of the equity at that time.

Michael Kim: But at that point in time, if there was an acceleration, it would result in us owning 100 percent of the equity at that time. And to answer your M&A question, but before I do, I'll also give a clarification on the first question about contingencies. We will also note in the transaction agreement that if Stepstone's multiple were to trade below 16 times as a contingency, that would pause the exchange in a given year and then resume in the following year. So I want to just clarify that one minor contingency that hopefully is of help here. From an M&A standpoint, I don't think this changes Stepstone's perspective on the market, and it certainly doesn't affect our capacity or capability to execute on anything strategic in that nature.

And to answer your M&A question, but before I do I'll also put a clarification on the first question of contingencies. We also noted in the transaction agreement that now.

It's step stones multiple were to trade below 16 times as a contingency that that could that would pause and exchange in a given year and then resume in the following year. So wanted to just clarify that that one minor contingency that hopefully is have helped here from an M&A standpoint, I don't think this changes step stones perspective on the market it certainly doesn't affect our capacity or.

Our capability to execute on anything strategic in that nature. As we've mentioned there is a very small amount of cash involved in this transaction of 10% to 20% that is easily covered by a revolver that we currently have in place. So we feel we have the flexibility in the capital structure to continue to March forward on our strategic <unk>.

Michael Kim: As we've mentioned, there is a very small amount of cash involved in this transaction, 10 to 20 percent, that is easily covered by a revolver that we currently have in place. So we feel we have the flexibility and the capital structure to continue to march forward on a strategic front should opportunities present themselves. That's great. Thank you, guys, for all those highlights.

Should should opportunities present themselves.

That's great. Thank you guys for all those highlights and then just quickly around co mingled fund raise and the outlook. There just wanted to get maybe a high level to take on what you've kind of got in the plan for the coming year, or two which vintages might be might be coming up for a new <unk>.

Scott Hart: And then just quickly around commingled fundraises and the outlook there. Just wanted to get, you know, maybe a high level take on what you've kind of got in the plan for the coming year or two, you know, which vintages might be coming up for a new fundraise and also kind of what you're hearing from LPs, you know, at the current moment. Thanks. Sure. I mean, certainly in terms of what we are hearing from LPs at the moment, it feels like sentiment is moving in the right direction. You can imagine, for example, the S&P 500 hitting $5,000 for the first time today, and we're not talking as much about the denominator effect.

Right and then also kind of what Youre hearing from Lps at the current moment. Thanks.

Sure I mean, certainly in terms of what we are hearing from Lps at the moment.

It feels like sentiment is moving in the right direction, but you can imagine with for example, the S&P 500, hitting 5000 for the first time today and we're not talking as much about the denominator effect, we are still talking about the numerator effect in the sense that the rapid deployment, the strong sort of performance and valuations of private markets portfolios and the slowdown in <unk>.

Scott Hart: We are still talking about the numerator effect in the sense that, you know, the rapid deployment, the strong sort of performance and valuations of private markets, portfolios, and the slowdown in distributions do still have some investors overallocated relative to their target allocations. But not only the, excuse me, recovery in the public markets but views on interest rates and, you know, views on the current outlook are certainly meaning that LPs are more willing to commit and transact today. And we have been the beneficiary of that with some of the closings that we referenced during this past quarter as well as some of the fundraising momentum that we have at the moment. And so as we think about, you know, what we have in the market at the moment, we do have a number of our key commingled funds and strategies in the market.

Tribunal does still have some investors over allocated relative to their target allocations.

But not only the recovery in the public markets, but views on interest rates and views on the current outlook.

Certainly, meaning that Lps are more willing to commit and transact today and we've been the beneficiary of that with some of the closings that we referenced during this past quarter as well as some of the fund raising momentum that we have at the moment and so as we think about what we have in market at the moment, we do have a number of our.

Our key co mingled funds and strategies in the market were late.

Scott Hart: We're in the late stages of fundraising for our private equity secondaries fund, which, as we referenced, now stands at about $3 billion. Similarly, our venture capital secondaries fund now stands at about $1.5 billion. And, you know, those funds will continue to fundraise but should wrap up in the first half of this calendar year. We continue to raise for our special situation real estate secondaries fund, which has good momentum and is very well positioned for the current environment. And we're in the market with other key strategies like our multi-strategy growth equity fund, our inaugural infrastructure co-investment fund, as well as our corporate direct lending fund. So there is lots of opportunity in the market from a commingled standpoint right now.

In the late stages of fundraising for our private equity Secondaries fund, which as we referenced now stands at about $3 billion. Similarly, our venture second venture capital Secondaries Fund now stands at about $1 $5 billion and those funds.

We will continue to fund raise but should wrap up.

And in the first half of this calendar year, we continue to raise for our special situations real estate Secondaries Fund, which has good momentum is very well positioned for the current.

For the current environment.

And we're in market with other key strategies like our multi strategy growth equity fund our inaugural infrastructure co investment fund as well as our corporate direct lending funds. So lots of opportunity in the market from a commingled standpoint, right. Now we will obviously also continue to be raising across each of our private wealth.

Scott Hart: We'll obviously also continue to be raising funds across each of our private wealth strategies going forward here. Thank you for the rundown, Scott. I appreciate it. Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Scott Hart for any closing comments. Okay. Well, thank you everyone for joining us today. We appreciate the questions and the continued interest in Stepstone, and we look forward to speaking with you next quarter.

<unk> for the fourth.

Going going forward here.

Perfect. Thanks for the rundown Scott appreciate it.

Yes.

Thank you I'm showing no further questions at this time I'd like to turn the call back over to Scott Hart for any closing remarks.

Great well, thanks, everyone for joining us today, we appreciate the questions and the continued interest in steps down and we look forward to speaking with you next quarter. Thank you.

Scott Hart: Thank you. Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day. Blooper

Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.

Okay.

Yeah.