10-Q: StepStone Group Inc. Reports Q3 Fiscal Year 2025 Results, Driven by Strong Management Fees and Positive Carried Interest

StepStone Group Inc. announces its financial results for the third quarter of fiscal year 2025, highlighting growth in management fees and a significant turnaround in carried interest allocations.

Summary

• StepStone Group Inc. reported total revenues of $339.0 million for the three months ended December 31, 2024, compared to a loss of $14.6 million for the same period in 2023.
• Management and advisory fees, net, increased by 26% to $190.8 million, driven by new client activity and a 24% growth in average fee-earning assets under management (FEAUM).
• The company experienced a positive shift in carried interest allocations, with $117.6 million compared to a negative $114.3 million in the prior year.
• Net loss attributable to StepStone Group Inc. was $192.0 million, or $2.61 per share, compared to a net loss of $20.2 million, or $0.32 per share, in the prior year.
• For the nine months ended December 31, 2024, total revenues increased by 125% to $797.1 million compared to $354.8 million in the prior year.
• FEAUM increased approximately $20.3 billion to $114.2 billion as of December 31, 2024, compared to March 31, 2024.
• The company issued $175.0 million in senior notes due October 22, 2029, and there were no amounts outstanding on the Revolver as of December 31, 2024.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While there's growth in management fees and a positive shift in carried interest, the net loss and increased expenses temper the overall outlook.

Positives

• Management and advisory fees, net, increased by 26% to $190.8 million for the three months ended December 31, 2024.
• The company experienced a positive shift in carried interest allocations, with $117.6 million compared to a negative $114.3 million in the prior year.
• FEAUM increased approximately $20.3 billion to $114.2 billion as of December 31, 2024, compared to March 31, 2024.
• Incentive fees increased $4.5 million, or 25%, to $22.4 million for the three months ended December 31, 2024 as compared to the three months ended December 31, 2023 largely due to higher incentive fees generated by StepStone's Private Venture and Growth Fund (SPRING).

Negatives

• Net loss attributable to StepStone Group Inc. was $192.0 million, or $2.61 per share, compared to a net loss of $20.2 million, or $0.32 per share, in the prior year.
• Equity-based compensation increased $472.4 million to $486.4 million for the three months ended December 31, 2024 as compared to the three months ended December 31, 2023. The increase was primarily attributable to a $474.5 million increase in expenses for liability classified awards related to the profits interest issued in the private wealth subsidiary in the current year period as compared to the prior year period, partially offset by a decrease in RSU expense due to the final vesting of RSUs issued in connection with our IPO.

Risks

• Difficult or volatile market and political conditions can adversely affect the business by reducing the market value of assets, causing clients to reduce investments, and reducing the ability of funds to raise or deploy capital.
• Evolving laws and government regulations could adversely affect the company, including increased compliance burdens and regulatory costs.
• Ongoing political developments could adversely impact the investment management and investment advisory businesses.
• Governmental actions related to the imposition of tariffs, sanctions or other trade barriers or changes to international trade agreements or policies, such as USMCA, could increase costs, decrease margins, reduce the competitiveness of products and services offered by current and future portfolio companies and adversely affect the revenues and profitability of companies whose businesses rely on goods imported from outside of the United States.

Future Outlook

The company believes it will have sufficient cash flows to meet its liquidity and capital resources requirements for the next 12 months.

Industry Context

The document provides insight into StepStone's performance within the private markets investment sector, highlighting the impact of market conditions, fundraising environment, and client preferences on the company's financial results.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or benchmarks.
• Without additional information, it is difficult to assess StepStone's performance relative to its peers.

Related Party Transactions

• The company earned net management and advisory fees from the StepStone Funds of $121.2 million and $100.8 million for the three months ended December 31, 2024 and 2023, respectively, and $369.8 million and $289.8 million for the nine months ended December 31, 2024 and 2023, respectively.
• Carried interest allocation revenues earned from the StepStone Funds totaled $117.6 million and $(114.3) million for the three months ended December 31, 2024 and 2023, respectively, and $204.1 million and $6.5 million for the nine months ended December 31, 2024 and 2023, respectively.
• Legacy Greenspring carried interest allocation revenues earned from certain legacy Greenspring funds for which the Company has no direct economic interests totaled $8.2 million and $(69.7) million for the three months ended December 31, 2024 and 2023, respectively, and $13.0 million and $(106.3) million for the nine months ended December 31, 2024 and 2023, respectively.

Stakeholder Impact

• Shareholders: The net loss may concern shareholders, but the growth in AUM and management fees could be seen as positive indicators.
• Employees: The increase in cash-based compensation suggests a positive impact on employees, while the performance fee-related compensation is tied to the company's performance.
• Clients: The company's ability to generate strong returns and provide customized investment solutions is crucial for client satisfaction and retention.

Key Dates