StepStone (STEP) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported GAAP net income of $103.6 million, with net income attributable to StepStone Group Inc. at$41.8 million [6] - Fee-related earnings for the quarter were $35.9 million, adjusted net income was$43.7 million, and adjusted net income per share was $0.38, reflecting a 52$0.20 per share, a 33% increase over the prior dividend [29] Business Line Data and Key Metrics Changes - Fee-earning assets increased by over $23 billion for the year, ending with$75 billion of fee-earning AUM, with over 60% of organic growth coming from infrastructure, real estate, and private debt [11] - Private debt has been the fastest-growing asset class, with fee-earning assets growing at nearly 40% annualized pace [16] - The company completed the final close on its second Senior Corporate Lending Fund, raising a total of $1.3 billion, and its first credit opportunities fund raised over$600 million [17] Market Data and Key Metrics Changes - The company generated approximately $21 billion of gross AUM inflows in the last 12 months, with$5 billion from commingled funds and $16 billion from separately managed accounts [35] - Fee-earning assets grew organically by$4 billion in the quarter, with $3.7 billion added from separately managed accounts [35] - The company returned over$7 billion of capital to limited partners, marking the largest 12-month period of capital distributions on record [39] Company Strategy and Development Direction - The company aims to leverage its diversified platform to navigate market cycles and capitalize on investment opportunities [12][14] - There is a focus on expanding the product portfolio, including retail and institutional offerings, with plans for new funds targeting various asset classes [75][78] - The company is committed to maintaining a strong ESG framework, emphasizing carbon neutrality and diversity initiatives [30][32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to grow fee-earning assets despite a challenging market backdrop characterized by inflation and rising interest rates [12] - The fundraising environment is expected to be more challenging, but there is still significant interest from investors looking to enter the venture capital market [65] - The company anticipates a bifurcated fundraising market, favoring disciplined managers with strong track records [27][86] Other Important Information - The integration of the Greenspring acquisition is progressing well, enhancing access to deal flow and due diligence insights [24] - The company reported a gross accrued carry of $1.5 billion, up 10% from the prior quarter [58] - Non-core expenses increased due to potential Greenspring acquisition earn-outs, which are expected to accrue periodically over the next three years [53] Q&A Session Summary Question: Interest in Venture Capital and Fundraising Environment - Management noted a shift in investor mentality towards sustainable growth and profitability, with continued momentum in fundraising despite a more challenging environment [63][64] Question: Performance Fee Compensation and Carry - Management explained that the low performance fee compensation payout ratio was due to timing and specific relationships, indicating it was an unusual quarter [67][68] Question: Retail Evergreen Product Distribution - The company reported strong progress in building out its distribution platform across various channels, with a focus on increasing allocations and team investment [72][73] Question: M&A Activity and Market Dynamics - Management indicated ongoing M&A activity in the industry, with a focus on strategic acquisitions to enhance the platform and navigate market transitions [102][103]