StepStone Group Inc. Q4 FY2024 earnings call

• Fiscal fourth quarter saw gross new commitments of $6 billion, matching the third quarter's strong result. Raised nearly $4 billion in managed accounts and over $2 billion in commingled funds, including over $600 million in private wealth subscriptions, the best quarter in the private wealth channel. Full year new AUM commitments totaled $18.6 billion.
• Private wealth growth is broad-based with record subscriptions across products and regions. Three private wealth funds in market with $3.4 billion net asset value, and anticipation of first close of private wealth credit product CredEx in the coming quarter.
• Hosted first Investor Day last year with goals to double fee-related earnings and expand FRE margins to mid-30s. Made strong progress with 10% growth in fee earning AUM, over 20% growth in fee-related earnings, and 100 basis point expansion in FRE margins. UFEC at $22.6 billion, highest ever.
• Entered into agreements to buy non-controlling interests in infrastructure, private debt, and real estate businesses, first exchange effective April 1st with closing by end of June, expected to be accretive. Sold Greenspring Back Office Solutions for net savings and efficiency.
• Board declared a supplemental cash dividend of $0.15 per share on top of the normal $0.21 per share quarterly cash dividend, with supplemental dividend likely a cyclical low based on performance fees.

For the fourth quarter of fiscal 2024, StepStone generated fee-related earnings of $50.9 million, up 35% from the prior year quarter, with an FRE margin of 33%. Retroactive fees contributed $5.4 million to revenue, compared to $0.5 million in the fourth quarter of fiscal 2023. Adjusted net income for the quarter was $37.7 million or $0.33 per share, up from $27.1 million or $0.24 per share in the prior year. Fee earning AUM grew by $4.4 billion in the quarter, split evenly between managed accounts and commingled funds. Undeployed fee earning capital (UFEC) stood at a record $22.6 billion. The blended management fee rate was 59 basis points for the fiscal year, higher than the prior year's 54 basis points, benefiting from higher fees from private wealth offerings and retroactive fees.

• Strong fundraising momentum continues with gross new commitments of $6 billion in Q4, matching Q3, and expectation of continued strong inflows. Private wealth channel shows broad-based growth with record subscriptions.
• Anticipate continued growth in operating earnings and KPIs in fiscal 2025, driven by strong fundraising pipeline, commingled fundraisers, and progress in private wealth channel.
• Base dividend expected to grow generally in line with fee-related earnings, while supplemental dividend driven by net realized performance fees, with expectation of future increases as capital market activity normalizes.

Forward-looking statements are subject to various risks, uncertainties, and assumptions described in StepStone's periodic filings. Actual results may differ materially from forward-looking statements due to changes in circumstances or other factors.

Q: Nick Benoit from Barclays asks about the private wealth platform inflows, specifically if driven by RIA channel growth or client re-ups.

A: Jason Ment responds that flows are broad-based across RIA, broker dealer, wire houses in US, and non-US wealth channels, with all three funds in market seeing strong flows and low redemptions.

Q: Michael Cyprys from Morgan Stanley inquires about private wealth product pipeline and distribution of existing products.

A: Jason Ment says no new product to announce beyond CredEx currently, with SPRIM, SPRING, and Infrastructure Fund distribution syndicates being built out, and SPRIM and SPRING funds ahead of SPRIM's similar point in time in fundraising trajectory.

Q: Kenneth Worthington from JPMorgan asks about exchange transactions accretions, changes upon owning over 50%, and growth in credit platforms.

A: Scott Hart states accretions are modest, no major changes in operating businesses upon owning over 50%, and private credit growth will be driven by product launches and existing activity, with activity concentrated in certain geographies and asset classes.

Q: Adam Beatty from UBS asks about separate account flows trajectory.

A: Scott Hart says SMA flows were strong in Q4, driven by real estate and private equity, with healthy pipeline of new and existing clients across strategies, concentrated in private equity, infrastructure, and private credit, and undeployed fee earning capital expected to have some normalization but remain in a healthy range over time.