Q4 2025 StepStone Group Inc Earnings Call
Okay.
Speaker Change: Thank you for standing by and welcome to step stone groups fiscal fourth quarter 2025 earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone if your question has been answered.
Speaker Change: Remove yourself from the queue simply press star one again.
Speaker Change: Today's program is being recorded and now I'd like to introduce your host for today's program Seth Weiss head of Investor Relations. Please go ahead.
Speaker Change: Thank you and good evening joining me on today's 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 Stepson's periodic filings.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Turning to our financial results for the fourth quarter of fiscal 2025, beginning with slide three we reported a GAAP net loss attributable to step stone group incorporated of $18 $5 million or $20 per share.
Speaker Change: Moving to slide five we generated fee related earnings of $94 $1 million up 85% from the prior year quarter, and we generated an FRE margin of 44%.
Speaker Change: The quarter reflected retroactive fees, primarily from our special situations real estate Secondaries fund and our multi strategy gross equity fund.
Speaker Change: Attractive fees contributed $15 $7 million to fee revenues, which compares to retroactive fees of $5 $4 million in the fourth quarter of fiscal 2024.
Speaker Change: We earned $86 million and adjusted net income for the quarter or <unk> 68 per share.
Speaker Change: This is up from $37 $7 million or <unk> 33 per share in the fourth quarter of last fiscal year, driven by higher fee related earnings and higher performance related earnings.
Speaker Change: Finally, we declared a base quarterly dividend of 24.
Speaker Change: As well as a supplemental dividend of <unk> 40.
Speaker Change: Both of which will be payable on June 30.
Speaker Change: The full dividend payout related to this fiscal year is $1 36.
Speaker Change: Up from last year's total of 99.
Scott: I'll now hand, the call over to Scott.
Scott: Thanks Beth.
Scott: We generated record earnings this quarter, a capstone for a record fiscal year.
Speaker Change: Our fee related earnings FRE margin and adjusted net income per share were all at our highest levels ever for both our quarterly and annual results for.
Speaker Change: For the full year, we raised over $31 billion of assets under management and generated $27 $5 billion of growth in our fee, earning AUM both record year results for steps down.
Speaker Change: To translate the fee, earning asset growth of over 29% in fiscal 2025, which is our best organic growth rate for any 12 month period since we became a public company.
Speaker Change: Our increasing scale continues to be a tailwind for growth.
Speaker Change: Our managed account re up rate remains above 90% and on average it was re upped accounts have grown at approximately 30%.
Speaker Change: Fiscal 2025 was also an excellent year for managed account expansion with over $8 $5 billion of SMA inflows were over 40% of total SMA inflows sourced from new accounts or expanded relationships. This plant the seeds for continued growth from re ups and upsizing.
Speaker Change: Our commingled funds are also growing.
Speaker Change: Prior to this year, our largest commingled fund was $2 6 billion.
Speaker Change: Over the last 12 months, we've closed on three commingled funds of over $3 billion.
Speaker Change: Which contributed to a remarkable year.
Speaker Change: Our growing scale and scope have afforded us new opportunities.
Speaker Change: Earlier this fiscal year, we close on our debut infrastructure co investment fund of over $1 billion.
Speaker Change: Results for a first time fund.
Speaker Change: With the raising of this fund we now have commingled funds across all four asset classes.
Speaker Change: Our second infrastructure Commingled fund focused on secondaries has been well received and we are seeing strong demand.
Speaker Change: We had outstanding growth in our private wealth platform, which increased from $3 $4 billion of assets at the end of fiscal 2024 to over $8 billion at the end of this past fiscal year.
Speaker Change: In private wealth is driven by new products expansion of distribution growing.
Speaker Change: Growing momentum of existing products with existing distribution partners.
Speaker Change: Selling them funds and continued utilization of the <unk>.
Speaker Change: Over the past fiscal year, we added credits to our private wealth suite.
Speaker Change: We now offer evergreen funds across credit infrastructure venturing growth equity and of course are all private markets S. Prime fund.
Speaker Change: We expanded our distribution partners from roughly 300 unique platforms a year ago to almost 500 platforms today, and we continue to expand our offerings outside the U S.
Speaker Change: And the ability to purchase that's prime credit construct b. The ticker continues to be a point of value for our partners with nearly 80% of all eligible sales being executed with those tickers.
Speaker Change: This has led to consistent growth each quarter since the inception of steps doing private wealth in 2019.
Speaker Change: Moving to our highlights in the quarter total gross inflows were $9 9 billion.
Speaker Change: Our second highest quarter on record trailing only the first fiscal quarter of this past year.
Speaker Change: We generated a healthy balance across managed accounts commingled drawdown funds and private wealth evergreen funds.
Speaker Change: Included in this number is $1 $2 billion of evergreen subscriptions are best private wealth quarter ever.
Speaker Change: Strong fund raising combined with deployment of our unemployed fee, earning capital drove our fee, earning assets under management to over $121 billion of.
Speaker Change: Of $7 2 billion over last quarter.
Speaker Change: We generated fee related earnings of $94 million and an FRE margin of 44% both of which are our best measures ever.
Speaker Change: If you were to exclude the impact of retroactive fees, our FRE margin was 40% for the quarter and was 37% for the trailing 12 months, our highest quarterly and 12 month core margin levels on record.
Speaker Change: We generated our strongest ever adjusted net income per share of <unk> 68.
Speaker Change: Driven by our records and fee related earnings and in performance related earnings.
Speaker Change: As we've mentioned on recent calls we have seen an improving capital market backdrop over the last 12 months, which led to increases in announced deal activity toward the end of 2024, resulting in very strong realizations and distributions in the first calendar quarter of 2025.
Speaker Change: The backdrop, obviously shifting in April and is seemingly shifted back in may with rapidly evolving global trade policy driving volatility in the public markets and creating widening bid ask spread in the private markets.
Speaker Change: While we are cautiously optimistic based on recent progress made on trade policy. We expect that we will continue to operate in an environment characterized by uncertainty.
Speaker Change: As a result much of our focus will continue to be on scenario planning to quickly and dynamically assess the impact by asset class strategy region and sector.
Speaker Change: Our scale across global private markets allows us to balance opportunity versus risk and deploying capital in the best and most appropriate investments for our clients. We believe our information advantage and insight into private markets allow us to capitalize on market dislocations.
Speaker Change: Private markets have a consistent track record of outperforming the public equivalents.
Speaker Change: A meaningful portion of the industry's investment outperformance comes from limiting the downside during drawdowns, while capturing all of the upside and the subsequent recoveries.
Speaker Change: That is what we saw play out in the dotcom bubble burst the global financial crisis, and the market sell off after the outbreak of Covid.
Speaker Change: However for a private market investors capitalized and must take a long term disciplined approach our remaining invested through cycles and avoiding poor investments whether directly in deals or in funds.
Speaker Change: This is much easier said than done step stones experience expertise and scale enables us to consistently and tactically invest in the private markets through cycles for our clients.
Speaker Change: We have proven to be among the fastest growing private market asset managers by being able to guide Lps across market cycles.
Speaker Change: We're not immune to macroeconomic downturns is during periods of uncertainty when we have consistently proven our metal and widen the gap from our peers.
Mike: With that I'll turn the call over to Mike to speak to our fund raising and asset growth in more detail.
Speaker Change: As we did at the end of last fiscal year, Mike will provide an update on our performance relative to our Investor day goals from June of 2023.
Mike: Thanks Scott.
Speaker Change: Turning to slide eight we generated over $31 billion of gross AUM inflows during the fiscal year.
Speaker Change: Approximately $21 billion of these inflows came from separately managed accounts and over $10 billion came from our commingled funds.
Speaker Change: This is our best fiscal year since our founding for both managed account and Commingled fund gross inflows.
Speaker Change: During the quarter, we generated nearly $7 billion of managed account AUM inflows at over $3 billion of Commingled fund gross additions.
Speaker Change: Notable co mingled fund additions included a $300 million final close at our growth equity fund and a $1 $2 billion close on our real estate Secondaries fund.
Speaker Change: We conducted a final close of approximately $200 million had a real estate secondaries fund after the quarter end.
Speaker Change: Our gross equity fund just finished over $700 million.
Speaker Change: Similar in size to the prior fund, which is a great result in this challenging environment.
Speaker Change: Fund pursues founder led businesses outside of the traditional venture capital ecosystem that exhibit rapid top line growth.
Speaker Change: Selling margins.
Speaker Change: Capital efficiency and minimal leverage these.
Speaker Change: These growth oriented businesses have the potential to provide complimentary exposure to both buyout and venture investments, while generating liquidity that is not dependent on the IPO market or large scale strategic M&A.
Speaker Change: Our real estate fund finished at over $3 75 billion.
Speaker Change: Which is the largest real estate secondaries fund ever raised in the industry.
Speaker Change: This fund provides liquidity to asset owners during periods of market dislocation through GP led secondaries and recapitalization strategy pioneered by our team.
Speaker Change: Demand was very high with the funds significantly oversubscribed.
Speaker Change: We are well on our way to deploying this capital with $1 7 billion of investments already committed from the fund and related separately managed account Stepson's Real estate Partners Fund is a classic example of how we deliver for our clients and shareholders across market cycles turning.
Speaker Change: Turning to private wealth, we generated over $1 $2 billion of subscriptions that are evergreen funds growing the platform to $8 2 billion as of the end of fiscal year.
Speaker Change: We achieved our highest inflows ever on the platform as well as at the individual fund level for S Prime spring and strikes.
Speaker Change: The return and diversification benefits of layering on private market exposure across asset classes are resonating strongly within their private wealth market.
Speaker Change: Reflecting on this fiscal year, our secondaries platform enjoyed record sizes for our venture capital private equity and real estate funds as well as a successful debut offering in our infrastructure co investment fund and continued momentum in private wealth.
Speaker Change: Together, our Commingled fund gross inflows exceeded $10 billion for the first time in our company's history.
Speaker Change: And we expect to remain very active in fiscal 2026. We are currently in market with our private equity co investment fund, our multi strategy global venture capital Fund.
Speaker Change: Our corporate direct lending fund, our opportunistic lending fund and our debut infrastructure Secondaries Fund.
Speaker Change: It is also worth noting that our private equity Secondaries fund, which closed at $4 $75 billion last September is preparing to come back to market in the coming quarters.
Speaker Change: Slide nine shows our fee, earning AUM by structure and asset class for the quarter, we grew earning assets by over $7 billion.
Speaker Change: Our unemployed fee, earning capital or <unk> grew from about $22 billion last quarter to approximately $25 billion. This quarter driven by additions in managed accounts that pay on deployed capital.
Speaker Change: We feel great about this level of dry powder, given the potential opportunity to capitalize on market dislocations.
Speaker Change: The combination of fee, earning assets plus you effect grew to 146 billion.
Speaker Change: Which is up $10 billion sequentially and is up nearly $30 billion for.
Speaker Change: For 25% from a year ago.
Speaker Change: This translates to a very healthy 19% organic growth rate since fiscal 2020.
Speaker Change: Slide 10 shows our evolution of fee revenues.
Speaker Change: We generated a blended management fee rate of 65 basis points for the last fiscal year higher than the 59 basis points from the prior fiscal year as we benefited from retroactive fees and a positive mix shift from a higher fee rate associated with our private wealth offerings.
Speaker Change: Now turning to slide 11, I would like to highlight our progress relative to our 2023 investor day goals.
Speaker Change: Notice that this is essentially the same scorecard, we presented at our fiscal year end 2024 last call last May and June of 2023, we set a goal to at least double our fee related earnings over five years and to expand our FRE margin to the mid <unk>.
Speaker Change: Looking at our fiscal 2025 results fee related earnings has exactly doubled nearly two years.
Speaker Change: We accomplished this by growing our fee, earning AUM by over 40% and by expanding our FRE margin to over 40%.
Speaker Change: While we clearly benefited from favorable retroactive fees, our core margin, excluding retro fees was comfortably in the mid <unk>.
Speaker Change: We still have some work to do to achieve our fee related earnings goal, excluding retroactive fees, but it only two years into our five year cycle. We are well ahead of schedule.
Speaker Change: Importantly, we are achieving our targets, while continuing to invest for growth and providing strong cash returns to our shareholders.
Speaker Change: As an investment in technology enabled business most of our investment is in human capital.
Speaker Change: Our organization is over 1100 professionals today, nearly 20% higher than at the end of fiscal 2023, including investments in private wealth business development and data software and engineering three of our most important growth areas.
Speaker Change: Growth on our private wealth platform. This past year has been nothing short of spectacular with assets more than doubling.
Speaker Change: Distribution growing by nearly 200 unique partners and improve profitability contributing meaningfully to the firm as blended fee rate and FRE margin.
Speaker Change: Data and technology are deeply entrenched in all that we do it is embedded in our research and underwriting across primary as co investments in secondary investments is the engine behind cash flow pacing and valuation, which enables our private wealth platform.
Speaker Change: It is a critical value proposition and acquiring and retaining clients and increasingly we are leveraging our data and tech to highlight step stones brand reach.
Speaker Change: Recently insights from spy were featured in two prominent annual industry reports and we anticipate more opportunities to showcase our benchmarking and datasets in the years to come.
Speaker Change: Before passing the call to David I would like to provide an update on our buy in of the noncontrolling interests and on our capital distribution to shareholders.
Speaker Change: We expect to conduct the second tranche of our by end of the Noncontrolling interest of the asset classes in the first quarter of fiscal 2026, utilizing $10 million of cash and $161 million of equity.
Speaker Change: This translates to $3 $2 million issued shares effective as of April one.
Speaker Change: As a reminder, the cost of each buyer is hardwired based on steps those market multiple and the asset classes results.
Speaker Change: This year's buying will be executed on average at a greater than 15% discount to the step public p/e multiple.
Speaker Change: We view this as a very efficient use of capital as it provides positive earnings accretion, but no integration or execution risk.
Speaker Change: Next we are thrilled to announce that the board has declared a <unk> 48 per share supplemental dividend, which is tied to our performance related earnings.
Speaker Change: This is on top of the 24 base quarterly dividend.
Speaker Change: For the full year, we have declared a $1 36 per share of dividends for our class a common stock.
Speaker Change: 37% over last year's distribution.
Speaker Change: We believe this level of distribution represents a compelling value when contextualized with a 30% annual organic growth. We have achieved in fee related earnings over the last three years, while also considering cash usage for accretive NCI volume.
Speaker Change: I'll now turn the call over to David to speak to our financial highlights.
David: Thanks, Mike.
David: Turning to slide 13, we earn fee revenues of $215 million.
David: A 40% from the prior year quarter. The increase was driven by growth in fee, earning AUM across commercial structures and a higher blended average fee rate.
David: We also generated strong growth in advisory fees, some of which are project based fees that wont necessarily recur.
David: Fee related earnings were $94 million up 85% from a year ago FRE margin was 44% for the quarter of more than 1000 basis points versus the prior year quarter.
David: <unk> for retroactive fees previously mentioned onetime advisor fees and the bonus accrual adjustment.
David: <unk> margins were 37% extending nearly 600 basis points over the last year quarter.
David: Our core operating margin has consistently risen since our IPO in 2020.
David: The path forward for our margin may not be linear, but we believe that the long term trajectory will move higher as we continue to generate operating leverage.
David: Looking at expenses adjusted cash based compensation was $86 million flat to last quarter. The current quarter included a favorable adjustment to the bonus accrual, which offset the growth in head count.
David: For the full year, our cash compensation represented 46% of fee related revenues after adjusting for retroactive fees, we expect our fiscal 2026 cash compensation ratio to be around this level understanding there may be variability in any given quarter.
David: As a reminder, our annual compensation cycle resets with our new fiscal year with increases Hasnt taken effect on April one.
David: Adjusted equity based compensation was $2 9 million of $1 $2 million from last year's fiscal fourth quarter.
David: We anticipate equity based compensation to increase by about $1 million next quarter, our long term incentive plan generally vest over a four year cycle. The first fiscal quarter of 2020 will reflect a full four years' worth of equity based compensation expense.
David: General and administrative expenses were $32 million up $2 million sequentially and up about $5 million from a year ago.
David: Gross realized performance fees were $81 million for the quarter and $42 million net of related compensation expense, our best gross and net quarter ever.
David: The quarter largely reflect the realizations from the closings of previously announced deals.
David: Pipeline for realization for the next quarter or two remains driven by deals announced in the last six months.
David: Adjusted net income per share was <unk> 68, our highest quarterly result ever of one or two 6% from a year ago driven by growth in fee revenues FRE margin expansion and higher performance related earnings.
David: Income attributable to Noncontrolling interest in profits interest was $33 million.
David: Of $21 million from a year ago, driven by fee revenue growth in our infrastructure real estate and private debt asset classes really.
David: Performance fees retroactive fees and real estate and growth in our private wealth management teams.
David: Moving to key items on the balance sheet on slide 14, net accrued carry finished the quarter at $738 million down.
David: Down 1% from last quarter, given the strong level of realizations this period, but up 16% from over the last 12 months.
David: Net accrued carry is relatively mature with 75% type programs that are older than five years, which means that these programs are ready to harvest.
David: Our own investment portfolio ended the quarter at $276 million.
David: This concludes our prepared remarks, I'll now turn it back over to the operator to open the line for any questions.
Speaker Change: Certainly and our first question for today comes from the line of Ken.
Ken Worthington: Worthington from Jpmorgan Your question please.
Ken Worthington: Hi, great. Good afternoon, thanks for taking the question.
Speaker Change: Maybe first David.
David: I think you mentioned the twin fast so I apologize if I'm messing this up but there were some one time fees in the quarter.
Speaker Change: Were those onetime fees, how big were they and I think you indicated excluding the retro fees and the onetime fees margins would have been 37% again, assuming I heard all this correct.
Speaker Change: Is that right and is it fair to expect that margins sort of increase from that level. As we look forward in fiscal year 'twenty six or is that sort of the right level, we should expect.
Speaker Change: For next year at least as of this point in time.
Speaker Change: Yeah, Thanks, Ken for the question.
Speaker Change: So the onetime fees were in our advisory fees. Our advisor reviews typically include both recurring and nonrecurring fees.
Speaker Change: This quarter included a somewhat larger onetime piece. So we thought it would be helpful to call out it was about $4 million.
Speaker Change: On the cash comp, we did benefit from a favorable bonus accrual adjustment downward.
Speaker Change: We normalize the cash comp we'd be roughly $89 million.
Speaker Change: So if you factor in both of those.
Speaker Change: The FRE margin for the quarter would have been 37% versus the 40% just purely excluding retroactive fees.
Speaker Change: And if you look at our fiscal.
Speaker Change: Full year fiscal 'twenty five margin excluding retroactive fees.
Speaker Change: I was also about 37% so.
Speaker Change: The 30% margin is a fair expectation.
Speaker Change: As a starting point.
Speaker Change: But as you know from quarter to quarter, the margins are going to vary, particularly the next quarter.
Speaker Change: Our merit increases took effect April one so you should see a slight bump up in compensation as well as incremental hirings.
Speaker Change: Okay excellent that was super helpful.
Speaker Change: Okay.
Speaker Change: Maybe just secondly, you effect.
Speaker Change: Had a nice jump this quarter or 24, six despite the $2 billion of deployment.
Speaker Change: Suggest sort of continued strong execution.
Speaker Change: I guess the question here is how does the pipeline of new business.
Speaker Change: One book So fundraising has been really on a tear this year. So you.
Speaker Change: No.
Speaker Change: One a lot of new business more recently in the environment has seen some increasing volatility I think there is some seasonality as well.
Speaker Change: Maybe how far out do you feel comfortable with visibility on the <unk> pipeline and how does it look.
Speaker Change: And sorry, just to clarify did not wanted to just clarify what you said there.
Speaker Change: So you get sort of one but it just hasnt converted to fee paying AUM. So we know what that that pipeline is but what is sort of the business that you're bidding for but yet you haven't necessarily won yet does that pipeline.
Speaker Change: But better are you have you won so much as it sort of depressed how does the outlook look given what you've already done and then combine that with sort of seasonality and market conditions et cetera.
Speaker Change: Sure got it understood look I will say that we are actually.
Speaker Change: Feeling fairly positive in terms of the pipeline of new opportunities whether through Rfps that we are in the process of responding to.
Speaker Change: Whether it is some newer pools of capital that are coming online and just allocating to the private market for the first time.
Speaker Change: As a reminder, we've talked about that in the past tends to be groups that were speaking to outside of the U S for <unk> for the most part.
Speaker Change: I've just come back from some recent trips where are you seeing even long time investors in the private markets just start to set aside an allocation for things like private credit opportunities and so I would say that we continue to be.
Speaker Change: Pleased with the amount of opportunity that lies ahead of us.
Speaker Change: On the separate account side look we are obviously coming off a very strong fund raising year from a separate separate account standpoint, good mix of re ups as well as new and expansion business as we highlighted during.
Speaker Change: Highlighted in the prepared remarks, we probably don't have the same size.
Speaker Change: <unk> of rehab opportunities coming but still a very healthy.
Speaker Change: Our pipeline and expect to continue to execute on that at a very high re up rate and so overall feel feel fairly good about the pipeline and then lastly, I would say just to loop in some of the.
Speaker Change: Mingled funds as well as part of the reason we wanted to highlight that certain of those funds, maybe coming back to market sooner than you expected and the reminder, there is really around private equity secondaries, where we had started to actually invest that fund back in October 2022, when we activate it.
Speaker Change: Clearly given the fund raising environment, it took a bit longer to ultimately get to our final close although that exceeded our target expectation and here. We are almost right on plan three years later, our planning for the next iteration. So again good pipeline of opportunities that lie ahead.
Speaker Change: Okay excellent. Thank you so much.
Speaker Change: Thank you and as a reminder, ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone. Our next question comes from line of Ben <unk> from Barclays. Your question. Please.
Ben: Hi, good evening and thank you for taking the question.
Ben: Just following up on the fundraising side, we've been hearing from some of your peers that especially for larger flagship funds theres likely to be more of a barbell shaped with a big first close of longer duration than our bigger final close curious if that resonates with what youre expecting for your funds in the market.
Ben: <unk>.
Speaker Change: Can you kind of on the same topic I was wondering if you could share any details just for the major flagships has anything been raised so far as anything.
Ben: Sort of yet in fee, earning AUM.
Ben: And how should we think about sort of the near term cadence of potential closes.
Ben: I think that that description of the bar Bell with a strong first and strong final close is exactly what we have described as well and exactly what you've seen in our two most recent.
Ben: <unk> flagship fundraise as being private equity secondaries and real estate secondaries, we did indeed have a sizable first close.
Ben: There has been an extended.
Ben: Period that we were fund raising before then having a very very strong final close and I think.
Ben: Part of that is just trying to create a sense of urgency in some momentum around.
Ben: Clients, who have a number of other opportunities on their plate given the crowded fundraising environment, but once you can confidently speak of wrapping up and having a final close.
Ben: They are they are more willing or enable to act there so.
Speaker Change: Agree with and tell you that we have experienced a similar phenomena in some of our recent fund raises.
Speaker Change: In terms of the flagship funds that are currently in market today, we've mentioned in the past that our private equity co investment fund is back end market.
Speaker Change: I have not had a first closing there yet.
Speaker Change: And we also have our multi strategy global venture capital fund in market as of the quarter ran that had not had a close has had its initial closing subsequent to the.
Speaker Change: March 31 quarter end, and then have you some of our.
Speaker Change: Other funds, including our first time infrastructure secondaries effort as well as our corporate direct lending and corporate opportunities funds and market, but no nothing that would have immediately hit fee, earning AUM.
Speaker Change: Based on based on.
Speaker Change: Recent close are there.
Speaker Change: Okay got it very helpful. And then maybe just on the same topic with the commingled funds just curious on the fee rates.
Speaker Change: Well I think a lot of us trying to do is sort of strip out what we think your management fees are on the wealth vehicles to strip out the retroactive fees and we will have to sort of like a core fee rate. It looks like that was a quite.
Speaker Change: Quite a bit higher this quarter than some of the prior quarters.
Speaker Change: Curious any details you can share there as well like how should that trend over the year or are we kind of at a good run rate or any other dynamics with new funds kind of turning on over the course of the next several quarters, we should be keeping in mind.
David: Hey, Ben this is David.
Speaker Change: You are right Commingled fund fee rates have trended up.
Speaker Change: Over time this.
Speaker Change: This quarter was particularly strong it was really driven by the retroactive fees from our real estate Secondaries fund with a relatively large close this quarter. If you strip out the retroactive fees. It was about 94 basis points for the quarter.
Speaker Change: But again that is a little bit.
Speaker Change: Elevated I think because you have to factor in timing of the closes.
Speaker Change: So if you look at our last 12 months and strip out the retroactive fees, which helps.
Speaker Change: Helps mute some of the timing elements.
Speaker Change: Our Commingle fund X retrofit rate would be in the low nineties.
Speaker Change: Okay very helpful. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Michael Cyprus from Morgan Stanley. Your question. Please.
Speaker Change: Hi, good afternoon. Thanks for taking the question, maybe just start off on.
Speaker Change: On the secondary marketplace some headlines.
Speaker Change: With some investors with dahlman may be looking to sell private portfolio Stakes, while there are other Lps.
Speaker Change: With liquidity constraints and their private portfolio. So just curious how you see this all playing out across the marketplace what role can step stone play.
Speaker Change: And then just more broadly on the secondaries marketplace. I think you mentioned you raised the largest secondaries fund ever in the marketplace.
Speaker Change: Under $4 billion, but thats, while successful much smaller than what we're seeing in the private equity space with funds over $20 billion is high. So just curious how you see the path for real estate and infrastructure secondaries products to meaningfully scale to double digit billions, what's that path look like how do you see that playing out thank you.
Speaker Change: Yeah. Thanks, Mike I mean, certainly a topic that we've been talking about really over the last couple of years, but agree that given the likely delay and some realizations as well as some either.
Speaker Change: LP specifics or the whole category specific challenges like you mentioned with the endowment is do you expect to see.
Speaker Change: Increased selling in the secondary market and we like the role for US to play there is that we are an active buyer in participant really across the entirety of the private markets.
Speaker Change: Not only including the funds that we talked about on this call and real estate.
Speaker Change: Private equity secondaries venture secondaries infrastructure, but even on the on the private credit side as well and so you can imagine we are actively evaluating opportunities in this market.
Speaker Change: And look I don't think that.
Speaker Change: The likely selling will be limited to obviously being down I think there are a number of groups that had been expecting this year to be an important one in terms of distributions and realizations you certainly saw from our numbers that that started to pick up with a number of announced transactions in the calendar Q4 of 24 in calendar Q1 of 'twenty five.
Speaker Change: <unk> that led us to have really a record.
Speaker Change: <unk> quarter this quarter, but now clearly expect that to slow down a bit just given bid ask spread and it likely delay in deals given the uncertainty in the market look on the real estate side. As a reminder, that fund is a really almost entirely GP led secondaries.
Speaker Change: <unk> fund.
Speaker Change: And part of what drove the growth in the fund size. There is that we think it is particularly well suited for the current environment. What we've seen much less of in the real estate market is a real pick up on the LP secondary side of things, where we today are active through separately managed accounts, but.
Speaker Change: Don't have a co mingled fund and there we've seen much less activity and so I think until until that picks up.
Speaker Change: Likely to see the real estate Secondaries fund scale dramatically or anywhere in line with what you mentioned on the private equity side.
Speaker Change: Great and then just a follow up question on the private wealth side, you guys have had a lot of success over $8 billion.
Speaker Change: Wealth assets I was just hoping you could maybe speak to how you see your product platform evolving as you look out over the next five years. When you look at the offering today you have a number of different strategies and a bunch of different asset classes, where do you see opportunities to sort of fill in and if you were to.
Speaker Change: Think about say the next $10 billion that you might raise in the coming years from the private wealth space broadly speaking how much of that might you anticipate from overseas versus domestic versus from newer products versus scaling existing how do you see sort of that cadence of that expanding from here.
Jason: Thanks, Mike Jason here.
Jason: Well at one 1 billion to a quarter hopefully.
Speaker Change: 10 billion won't take us too long as we continue to scale. The U S market continues to be a strong one for us and the European market continues to be a lot of white space as we continue to build out.
Speaker Change: A sales force as well as syndicate partners, there and spending a lot of time.
Speaker Change: <unk> time and attention there to help grow that as a percentage of the overall fund landscape in terms of the strategies that we bring to bear.
Speaker Change: We've talked often about the 12 boxes that we have in the toolkit across primaries secondaries and co investments across private equity real estate infrastructure and private credit there are obviously different flavors.
Speaker Change: Within each of these asset classes in terms of asset type and strategies and so we could see as the private markets becomes a bigger allocation within the individual investors wallet.
Speaker Change: That you'd see some degree of specialization, but we're going to have to do this on an iterative basis right as the allocation goes up the individual investor will look for more opportunities to specialize their exposures and then we can create product to address that and I think you see that.
Speaker Change: If you look back.
Speaker Change: In 2030, 40 years of history in the institutional market that the number of strategies and the types of strategies.
Speaker Change: A tapestry of available opportunity in the private markets has greatly developed as it became a larger part of the institutional wallet share so yeah.
Speaker Change: Yes, there will be opportunities to infill, but probably really only has the individual investor expands their wallet share in private markets.
Speaker Change: Great. Thank you.
Speaker Change: Thank you and our next question comes from the line of Chris Kotowski from Oppenheimer. Your question. Please.
Chris Kotowski: Yes, good afternoon, and thank you Michael stole my question, So I am kind of down to just to narrow modeling question.
Speaker Change: On the NCI buyout, you said it was $10 million of cash and then I missed the amount of stock.
Speaker Change: And I'm just kind of curious about.
Speaker Change: How to model that is it.
Speaker Change: How many shares were issued and is it in for the full.
Speaker Change: Quarter.
Speaker Change: And is there is there a percentage we should be thinking about kind of on an ongoing basis.
Speaker Change: What percentage of the kind of core FRE still accrues to the Noncontrolling interest.
Mike: Well, Chris it's Mike.
Speaker Change: As I mentioned that I repeat that there were $7 of cash, but we also issued $161 million of equity. So that was $3 2 million issued shares but David if you want to expand a little bit on the yes, Chris. So if you think about the buying it is hard wired.
Speaker Change: Payable the consideration is payable in cash up to 20%.
Speaker Change: The election of how much cash we pay is.
Speaker Change: It depends on the selling shareholders what the lag so.
Speaker Change: From year to year, then the amount of cash.
Speaker Change: Can vary.
Speaker Change: The.
Speaker Change: The number of shares right will be a function of whatever our trading multiple is.
Speaker Change: So you can make your assumptions, there, but but in no case will the amount of cash.
Speaker Change: 20% of the consideration.
Brian: And as you think about the NCI with each Brian.
Speaker Change: The shares are effective for as of April one for the entire <unk>.
Speaker Change: Fiscal quarter of fiscal year.
Speaker Change: And as each by end occurs right youre going to see a.
Speaker Change: More tapering off where <unk> of the NCI trajectory.
Speaker Change: Ultimately.
Speaker Change: Flattening out and then starting to decline over the last maybe four or five years.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Just kind of trying to think about.
Speaker Change: The incremental kind of step.
Speaker Change: Fiscal 'twenty.
Speaker Change: <unk>.
Speaker Change: Fiscal 'twenty to fiscal 'twenty, six and then it should be a couple of percentage points right.
Speaker Change: Yes, you can assume that's low single digits.
Speaker Change: Okay Alright. Thank you that's it for me.
Speaker Change: Okay.
Speaker Change: Thank you and our next question comes from the line of Alex <unk> from Goldman Sachs. Your question. Please.
Speaker Change: Hey, guys. This is Michael on for Alex. So you guys spoke to 500 unique distribution platform for retail products today versus I think 300, a year ago can you, maybe walkthrough, which channels are generating the most onboarding demand today versus how thats been historically and maybe how competition in those specific Shan also has evolved given a bunch of new entrants.
Speaker Change: The space.
Speaker Change: Thanks, Michael Jason Here I think are.
Speaker Change: Hi.
Speaker Change: Allocation amongst the different channels is actually fairly consistent.
Speaker Change: Period over period.
Speaker Change: And see just over a third of the U S distribution through the wires.
Speaker Change: Just over a third through the <unk> and the balance through the broker dealer and kind of direct relationship distribution.
Speaker Change: So I think thats been broadly consistent.
Speaker Change: In terms of the.
Speaker Change: Competitive landscape there are obviously, many more funds in the evergreen semi liquid space today than there were a year ago.
Speaker Change: They come in a variety of flavors, both direct gpus as well as other solutions providers and in different asset classes.
Speaker Change: And.
Speaker Change: While that.
Speaker Change: Landscape has become more crowded the individual investor is becoming more interested in private markets and so it is a growing pie and despite that competition. We've posted a couple of quarters in a row of best quarters ever.
Speaker Change: Yes.
Speaker Change: Maybe a follow up on the <unk>.
Speaker Change: I think our future you guys were relatively early with that but.
Speaker Change: And then kind of on the same theme a bunch of the new product launches have been interval funds, which come with similar ticker feature for new investors and subscribers is that kind of played in I know you guys mentioned, 80% of flows coming via ticker, but as new product launches do you have a similar dynamic is that impacting any of the fund raising that youre seeing and do you expect.
Speaker Change: That's the kind of change going forward.
Speaker Change: We have not seen any negative impact from other products coming on and.
Speaker Change: Don't see.
Speaker Change: That we should anticipate that on a go forward basis, our products each each of the four fund families are differentiated from what is out there today as prime is in all private markets funds. So really a one ticket solution with a model portfolio for private markets.
Speaker Change: With a ticker spring and the venture growth space is really an N of one in terms of what it offers to the individual investor structure in the multi manager infrastructure is really a novel offering and the credit fund combining multi manager exposure to both direct lending and specialty credit.
Speaker Change: Together so.
Speaker Change: We've tried to structure these products.
Speaker Change: With the end user in mind based on feedback from the channel and trying to offer something that actually is differentiated so yes, while it's a competitive landscape. These are just more folks that are out there educating the individual investor on the benefits of private markets and so far it's accrued to our benefit.
Speaker Change: Thank you.
Speaker Change: Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Scott for any further remarks.
Scott: Great well, thanks, everyone for your time and interest in steps down store today, obviously, hopefully you sense. How excited we are about the most recent quarter here and what lies ahead. So with that thank you and we look forward to updating you again next quarter.
Scott: Yes.
Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Scott: [music].
Scott: Okay.
Scott: Okay.
Scott: Okay.
Scott: Okay.
Scott: Okay.
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Scott: Okay.
Scott: Yes.
Scott: Okay.
Scott: Okay.
Scott: Sure.