StepStone's Fundraising Breadth Is Now Showing Up in Its Margins

What's New

StepStone Group, the $261 billion private markets manager with about $958 billion of total capital responsibility, argues in its latest quarterly earnings release that broad fundraising can carry earnings while exits stay slow. On the call, Scott Hart said the firm raised $43 billion over the past year, its strongest 12 months on record, balanced across separate accounts, commingled funds and private wealth. David Park said the quarter's 42% FRE margin should not be treated as a run rate. Fee-related earnings reached a record $126 million, up 61% from a year earlier. Undeployed fee-earning capital hit a new peak of $42.4 billion. Management lowered its full-year cash compensation ratio outlook to about 42% from 43% and expects meaningful margin gains for the year. The firm's case is that breadth, not any single product, now drives its margins.

Why It Matters

The market is questioning how managers grow when exits stay slow and the 10-year Treasury yield has crossed 5%. StepStone answers with fees on capital that is raised and committed, not capital that must be sold. Realized performance fees were the soft spot, flat at $65 million from a year earlier. The quarter also carried a $71 million GAAP net loss attributable to the company, tied to fair value changes in the planned buy-in of the private wealth profits interest. For shareholders, the question is how that buy-in is financed and how much stock it requires. For LPs, record demand for secondaries and co-investment funds shows where allocators are putting capital while distributions lag.

Big Picture Drivers

• Record fundraising: StepStone raised more than $11 billion in the quarter and $43 billion over 12 months, its best 12-month stretch. Separate accounts supplied about $24 billion of the annual total.

• Secondaries demand: PE secondaries funds took in about $700 million and the VC secondaries fund $600 million. The debut infrastructure secondaries fund closed at its $1.5 billion hard cap, the firm's largest first-time fund.

• Private wealth scale: Evergreen subscriptions reached $1.7 billion, and wealth platforms topped $23 billion. Redemptions ran at only 2% across the platform.

• Operating leverage: Core FRE margin hit 42%, two points above its prior peak. Higher commingled fund revenue and lighter compensation from late-quarter hires helped.

• Exit drag: Gross realized performance fees were flat at $65 million. Park said the environment for realizations remains challenging.

By The Numbers

• $126 million: Fee-related earnings rose 61% from a year earlier and came in 20% above the previous quarterly high.

• 42%: The FRE margin rose from 36% a year earlier, though Park warned against treating it as a run rate.

• $42.4 billion: Undeployed fee-earning capital hit a new peak, up 42% from a year earlier, and will add fees as it is invested.

• $158.2 billion: Fee-earning AUM grew 19% on $8.5 billion of quarterly contributions, partly offset by higher separate account distributions.

• More than $1 billion: Net accrued carry crossed that mark for the first time, up 23% from a year earlier, with 65% in programs older than five years.

Key Trends to Watch

• Margin path: Management expects meaningful full-year margin gains but flagged seasonally higher G&A over the next two quarters. Investors will judge whether 42% becomes a floor in fiscal 2028.

• Profits interest buy-in: StepStone is within 12 months of its call option on the private wealth profits interest. It will retain capital that would have funded the supplemental dividend and may pay up to 75% of the price in stock.

• Fee activations: The VC secondaries fund activated after quarter end, adding $1.8 billion to fee-earning AUM in fiscal Q3. A real estate secondaries fund and a growth equity fund expect first closes in the new calendar year.

• Retirement channel: Jason Ment said current products work without regulatory change. Proposed Labor Department rules from March remain under review and could widen 401(k) access.

Analyst Sentiment

• Positive: Evergreen subscriptions of $1.7 billion, and whether wealth growth comes from deeper distributor ties or new platforms.

• Optimistic: 401(k) access after the midterm elections, and Jason Ment's view that current products work without regulatory change.

• Supportive: The large separate account inflows, led by private credit, then infrastructure and private equity.

• Constructive: A pipeline balanced across new and existing clients and across Asia, Europe, Australia, the Middle East and the U.S.

• Watching: Whether the 42% margin holds as G&A rises seasonally and new hires add a full quarter of cost.

• Cautious: The right margin baseline after the profits interest buy-in.

• Mixed: The SPRING special distribution, with about 80% reinvested and about $70 million paid out in cash.

• Neutral: The size of the SPRING performance fee, which management declined to disclose.

Key Questions

• Margin Durability: How much of the 42% margin survives seasonal G&A and a full quarter of new hires?

• Buy-In Financing: How will StepStone fund the private wealth profits interest buy-in, and how much stock will it issue?

• Exit Timing: When will realizations pick up enough to draw on more than $1 billion of net accrued carry?

• Wealth Reach: Can StepStone sell more funds through its 860-plus distribution partners while keeping redemptions low?

• Capital Deployment: How quickly will $42.4 billion of undeployed capital turn into fee-earning assets?

Key Quotes

• Scott Hart (Chief Executive Officer) on Fundraising: "This represents our strongest 12-month period of fundraising in our history."

• Mike McCabe (Head of Strategy) on Private Wealth: "Penetration of private markets into high net worth is in the low single digits, while mass affluent exposure to private investments is near zero."

• David Park (Chief Financial Officer) on Margins: "I caution you against using that as a run rate for the rest of the year."

• Scott Hart on Exits: "We believe that uncertainty on the direction of interest rates rather than the level of interest rates has been the primary driver of slower capital market activity."

The Wrap

StepStone is betting that fundraising breadth can carry its earnings through a slow exit market. Record inflows across separate accounts, secondaries and private wealth pushed FRE up 61% while realized performance fees stayed flat. The argument does not claim 42% margins are the new normal, and Park expects them to ease next quarter. It rests on two things: steady demand across all three channels, and timely deployment of $42.4 billion of undeployed capital. If both hold, the profits interest buy-in would give shareholders a larger share of a growing wealth business. Fiscal third-quarter fee-earning AUM, the FRE margin and private wealth flows will show whether that is already happening.