Executive Summary / Key Takeaways

• Record-Breaking Growth Trajectory: StepStone Group is demonstrating exceptional growth, with fee-related earnings doubling in just two years, significantly ahead of its five-year target. This is underpinned by a 70% increase in fee-earning AUM since late 2021, showcasing robust organic expansion.
• Private Wealth Momentum: The Private Wealth platform is a standout growth engine, achieving record subscriptions of $2.4 billion in Q2 FY2026 and expanding to $12 billion in AUM. New products like STPEX and strategic international partnerships are accelerating this segment's contribution.
• Technological Edge and Data Monetization: StepStone's proprietary SPI platform and recent launches of Kroll StepStone Private Credit benchmarks and FTSE StepStone Global Private Market Indices provide critical data insights, driving investment decisions, client solutions, and creating new licensing revenue opportunities.
• Strategic Diversification and Operational Resilience: The firm's multi-asset class approach across private equity, infrastructure, private debt, and real estate, coupled with a global footprint and high client re-up rates, provides a ballast for consistent growth and resilience amidst evolving market conditions.
• Accretive Capital Allocation: StepStone's strategy of buying in non-controlling interests (NCI) is hardwired to be accretive to adjusted net income per share, representing an efficient internal M&A approach that enhances shareholder value.

The Foundation of Private Markets Leadership: Diversification, Data, and Global Reach

StepStone Group Inc. (NASDAQ:STEP) has established itself as a global private markets investment powerhouse, offering customized investment solutions and advisory services across the private equity, infrastructure, private debt, and real estate asset classes. Founded in 2007, with its holding company going public in September 2020, StepStone's journey has been marked by strategic expansion and a relentless focus on client-centric solutions. The firm's overarching strategy is built on diversification across commercial structures and asset classes, a broad geographic reach, and a deep reliance on proprietary data and technology. This approach has enabled StepStone to consistently deliver for clients and shareholders, particularly during periods of market uncertainty.

The competitive landscape in alternative asset management is dominated by large, diversified players such as Blackstone Inc. (BX), KKR & Co. Inc. (KKR), Carlyle Group Inc. (CG), and Apollo Global Management Inc. (APO). While these firms boast significant scale and broad market presence, StepStone carves out its niche through specialized investment strategies, a strong focus on emerging markets, and a differentiated technological backbone. StepStone's agility and targeted approach allow it to access deals in underrepresented regions, potentially improving pricing power and market share in specific segments where larger competitors may have less operational depth.

At the core of StepStone's competitive advantage is its proprietary technology platform, StepStone Private Markets Intelligence (SPI). This sophisticated system serves four critical use cases, fundamentally differentiating the firm. Firstly, SPI drives investment decisions and track record across primaries, secondaries, and co-investments, ensuring a data-informed approach to capital deployment. Secondly, it empowers existing clients with enhanced asset allocation, portfolio construction, and monitoring capabilities. Thirdly, offering SPI as a value-added service helps cultivate new client and limited partner relationships. Lastly, SPI is instrumental in powering StepStone's benchmarking indices and analytical tools through strategic data partnerships.

The tangible benefits of SPI are evident in recent innovations. The launch of the Kroll StepStone Private Credit benchmarks in September 2025 provides up-to-date, loan-level data and analysis, offering unparalleled insights into the private credit market . Further solidifying its data leadership, StepStone, in partnership with FTSE Russell, launched the FTSE StepStone Global Private Market Indices in October 2025. These indices, including U.S. buyout, U.S. infrastructure, and an all-private markets index, offer daily performance metrics based on comprehensive institutional-grade inputs . This daily pricing capability, honed through ticker-eligible evergreen products like SPRIM, provides a critical advantage in transparency and liquidity insights. The strategic intent behind these R&D initiatives is to establish market barometers and, in the longer term, to build asset management products around these reference benchmarks, creating new licensing revenue opportunities and a significant competitive moat . This technological leadership directly contributes to StepStone's market positioning, enabling superior client service and informing investment decisions that drive financial performance.

Financial Strength and Operational Excellence

StepStone's financial performance in fiscal year 2025 (ended March 31, 2025) and the first half of fiscal year 2026 (ended September 30, 2025) underscores its robust growth trajectory and operational effectiveness. For the six months ended September 30, 2025, total revenues surged to $818.5 million, a remarkable 79% increase from $458.1 million in the prior year period . This impressive top-line growth was primarily fueled by a substantial increase in carried interest allocations, which rose to $319.9 million from $86.5 million, reflecting higher net unrealized appreciation in private equity fund investments . Management and advisory fees, net, also saw healthy growth, climbing 18% to $426.7 million .

Despite a GAAP net loss attributable to StepStone Group Inc. of $366.1 million for the three months ended September 30, 2025, primarily due to a significant $847.7 million increase in equity-based compensation expenses related to the fair value change of liability classified awards for the StepStone Private Wealth (SPW) profits interest, the underlying operational profitability remains strong . This accounting dynamic, while impacting GAAP results, does not reflect the core operating performance. Fee-related earnings (FRE), a key non-GAAP metric, reached $79 million in Q2 FY2026, a 9% increase year-over-year, with core FRE (excluding retroactive fees) growing an impressive 34% to $78 million . The FRE margin stood at a healthy 36% for the quarter, both on a reported and core basis . StepStone's core operating margin has consistently expanded since its IPO in 2020, with management anticipating a continued upward trajectory driven by operating leverage .

The firm's liquidity position remains solid. As of September 30, 2025, StepStone held $230.4 million in cash, cash equivalents, and restricted cash, with total investments in StepStone Funds amounting to $1.94 billion, including $1.73 billion of accrued carried interest allocations . The company's debt obligations, net of issuance costs, were $269.9 million . Operating activities generated $62.5 million in cash for the six months ended September 30, 2025 .

StepStone also strategically issued $175 million in 5.52% Series A senior notes in October 2024, terming out debt and lowering interest costs . Management believes existing cash flows, cash equivalents, and access to future financing will adequately meet liquidity and capital requirements for the next 12 months .

Strategic Initiatives and Future Outlook

StepStone's strategic initiatives are designed to capitalize on evolving private markets and reinforce its leadership. The Private Wealth platform is a significant growth driver, achieving a record $2.4 billion in new subscriptions in Q2 FY2026, nearly doubling its previous highest quarter . The launch of STPEX, a pure-play private equity interval fund with daily subscription capabilities, garnered over $700 million in its first 30 days, exceeding initial expectations . While this initial surge is expected to moderate, STPEX is poised to be a substantial source of future private wealth inflows . The platform's AUM has grown to $12 billion, and its distribution network has expanded to approximately 650 individual partners, with 50% of established partners selling more than one evergreen product . International expansion, exemplified by the partnership with Aviva (AVVIY) in the U.K. pension scheme, aims to broaden access to private markets for retirement savers globally, with material flows expected to commence in calendar year 2026 .

In the institutional segment, StepStone continues to demonstrate robust fundraising. Managed accounts saw $3.8 billion in gross additions in Q2 FY2026, contributing to over $10 billion in the first half of the fiscal year . The firm's re-up rate for managed accounts remains above 90%, with re-upped accounts growing by approximately 30% in each successive vintage, highlighting strong client retention and expansion . Commingled funds also generated $3.4 billion in gross additions, including the first close of a PE co-investment fund . The company is actively in the market with its PE secondaries fund and a new dedicated GP-led private equity secondaries fund, with first closes anticipated by the end of fiscal year 2026 . The combined size of these new secondaries funds is expected to exceed the prior vintage of $4.8 billion .

StepStone's outlook is cautiously optimistic, balancing current market dynamics with long-term growth drivers. While private market distributions have been low for three consecutive years, shifting client focus from IRR to DPI, management believes this trend is temporary . Indicators such as increased IPOs, rising investment banking activity, and narrowing bid-ask spreads suggest a pickup in realizations ahead . The company's undeployed fee-earning capital (UFEC) grew to nearly $30 billion in Q2 FY2026, providing a strong pipeline for future management fee revenue as capital is deployed over a typical three-to-five-year cycle . Management expects core FRE margins to hover around 37% as a starting point, with some quarterly variability due to factors like merit increases and seasonally elevated general and administrative expenses . The call option for the StepStone Private Wealth profits interest is expected to be exercised in September 2027, which is anticipated to be accretive to EPS .

Risks and Challenges

Despite its strong positioning, StepStone faces several risks inherent in the private markets. Global and domestic market conditions, including persistent inflation, elevated interest rates, and geopolitical tensions, can impact the value of StepStone Funds' holdings and the pace of capital deployment . Slowdowns in fundraising activity and profitable exits by fund managers could lead to delayed or decreased management and performance fee revenues .

Carried interest allocations, a significant component of revenue, are subject to reversal in the event of future losses, and the company may be obligated to repay previously distributed amounts. As of September 30, 2025, the maximum amount of carried interest allocations (excluding legacy Greenspring) subject to contingent repayment was an estimated $396.4 million, net of tax, under a remote scenario of zero investment fair value . While management and advisory fees are less sensitive to market value fluctuations, a 10% decline in fund investment market values could still reduce annual management fees by approximately $15 million . The company's reliance on its ability to source attractive investments with appropriate risk-adjusted returns is crucial, and a significant decrease in quality or quantity of opportunities could adversely affect its growth .

Conclusion

StepStone Group stands as a compelling investment in the private markets, driven by a powerful combination of strategic diversification, technological leadership, and a proven ability to execute. The firm's record-breaking fee-related earnings growth, fueled by the spectacular expansion of its Private Wealth platform and robust institutional fundraising, demonstrates its capacity to thrive even in challenging market environments. The proprietary SPI platform and its innovative data products, such as the FTSE StepStone Global Private Market Indices, provide a distinct competitive advantage, enhancing client solutions and opening new revenue streams.

While macroeconomic uncertainties and the inherent lumpiness of private market realizations present ongoing risks, StepStone's diversified business model, global footprint, and disciplined investment philosophy offer resilience. The company's strategic focus on accretive NCI buy-ins and continued investment in growth areas like private wealth and data engineering further solidify its long-term value proposition. As private markets continue to evolve and attract increasing capital, StepStone's unique blend of expertise, technology, and client relationships positions it for sustained growth and continued outperformance.