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StepStone (STEP) - 2023 Q2 - Earnings Call Transcript
STEPStepStone (STEP)2022-11-06 07:29
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Financial Data and Key Metrics Changes - The company reported a GAAP net loss of 67.1millionforQ22023,withanetlossattributabletoStepStoneGroupof67.1 million for Q2 2023, with a net loss attributable to StepStone Group of 29.2 million [7] - Fee-related earnings reached 39million,markinga4839 million, marking a 48% increase year-over-year, while adjusted net income was 37.3 million, down from 0.40pershareintheprioryearquarterto0.40 per share in the prior year quarter to 0.33 [11][12] - The company finished the quarter with 135billioninassetsundermanagement(AUM)and135 billion in assets under management (AUM) and 80 billion in fee-earning assets, reflecting a 20% growth in fee-earning AUM over the past year [14] Business Line Data and Key Metrics Changes - The retail segment saw strong inflows, raising approximately 180millionforthequarterintotheSeaPrimeproduct,whichnowhasover180 million for the quarter into the SeaPrime product, which now has over 850 million in AUM and an annualized return of 33% [17] - The company activated several funds post-quarter, including a PE secondaries fund and a multi-strategy global venture capital fund, which are expected to contribute approximately 2billiontofee−earningassetsinthenextquarter[22]MarketDataandKeyMetricsChanges−Thecompanyexperienceda2 billion to fee-earning assets in the next quarter [22] Market Data and Key Metrics Changes - The company experienced a 500 million drag on fee-earning assets due to currency movements, primarily from the strengthening of the U.S. dollar [23] - The company reported 19billioningrossAUMinflowsoverthelast12months,withover19 billion in gross AUM inflows over the last 12 months, with over 7 billion from commingled funds and over 11billionfromseparatelymanagedaccounts[21]CompanyStrategyandDevelopmentDirection−Thecompanyaimstomakeprivatemarketsaccessibletoindividualinvestors,rebrandingConversusasStepStonePrivateWealthandexpandingitsretailproductofferings[17][26]−Themanagementemphasizedtheimportanceofmanagerselectionandassetallocationinthecurrentmarketenvironment,positioningStepStonetohelpclientsnavigatethesechallenges[15]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementnotedthatwhileclientsarecautious,theyarestilllookingforcompellingopportunitiesinprivatemarkets,indicatingaresilientdemanddespitemarketvolatility[15]−Thecompanyexpectstogrowitsquarterlydividendinlinewithfee−relatedearningsandplanstointroduceasupplementalannualdividendfundedbyperformance−relatedearnings[34][35]OtherImportantInformation−ThecompanyreportedaFREmarginof3311 billion from separately managed accounts [21] Company Strategy and Development Direction - The company aims to make private markets accessible to individual investors, rebranding Conversus as StepStone Private Wealth and expanding its retail product offerings [17][26] - The management emphasized the importance of manager selection and asset allocation in the current market environment, positioning StepStone to help clients navigate these challenges [15] Management's Comments on Operating Environment and Future Outlook - Management noted that while clients are cautious, they are still looking for compelling opportunities in private markets, indicating a resilient demand despite market volatility [15] - The company expects to grow its quarterly dividend in line with fee-related earnings and plans to introduce a supplemental annual dividend funded by performance-related earnings [34][35] Other Important Information - The company reported a FRE margin of 33% for the quarter, up approximately 100 basis points year-over-year, indicating strong profitability [37] - The gross accrued carry finished the quarter at approximately 1.2 billion, reflecting a decrease due to reduced underlying valuations [42] Q&A Session Summary Question: Update on FRE margin expectations - Management indicated that the FRE margin is tracking ahead of expectations, maintaining a medium-term outlook in the mid-30s range [46] Question: Retail flows and investor hesitancy - Management noted that retail flows have increased due to expanded distribution and strong product reception, despite market volatility [48] Question: Fundraising and LP capacity - Management acknowledged that many LPs have spent their 2022 budgets early, but they expect commitments to increase in early 2023 as budgets free up [53][55] Question: Competitive environment for retail products - Management highlighted the differentiated nature of their retail products, emphasizing their multi-asset class approach and accredited eligibility [56][58] Question: Impact of Conversus transition on adjusted income - Management clarified that the distribution business has not been profitable yet, but they expect to provide updates on flows and AUM as they progress [69] Question: Liquidity solutions and secondary market activity - Management noted an increase in LP interest in the secondary market as a solution to over-allocations, with a growing pipeline of LP-led secondary transactions [95] Question: Re-up rates and new customer activity - Management reported strong re-up rates, particularly on separate accounts, and noted good progress with new clients despite some delays in closing [102][104]