StepStone Group Inc. (STEP) Q2 2021 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to StepStone's Fiscal 2021 Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call will be recorded. I would now like to turn the conference over to Michael Kim of ICR, StepStone's Investor Relations liaison. Please go ahead, Michael.

Thank you, and good afternoon, everyone. Joining today are Scott Hart, Co-Chief Executive Officer; Jason Ment, President and Co-Chief Operating Officer; Mike McCabe, Head of Strategic Planning; and Johnny Randel, Chief Financial Officer. During our prepared remarks, we will be referring to slides, which are available for viewing or download from our website at stepstonegroup.com. Before we begin, I'd like to remind everyone that this conference call as well as the presentation slides contain certain forward-looking statements regarding the company's expected operating and financial performance for future periods. Forward-looking statements reflect management's current plans, estimates and expectations and are inherently uncertain and are subject to various risks, uncertainties and assumptions. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of risks or other factors that are described in greater detail under Risk Factors of StepStone's IPO prospectus filed with the U.S. Securities and Exchange Commission on September 16 and our Form 10-Q expected to be filed in the next few days. Turning to our financial results. We reported GAAP net income of $108.4 million for the quarter. GAAP net income attributable to StepStone Group, Inc. was a loss of $0.8 million for the period September 16 to September 30, 2020. Fee-related earnings was $28.2 million for the quarter, up 125% from a year ago. And adjusted net income was $18.3 million or $0.19 per share, up 59% from the prior year. With that, I'd like to turn the call over to StepStone's Co-Chief Executive Officer, Mr. Scott Hart. Scott?

Thanks, Michael. Good afternoon, everyone, and thank you for joining us for StepStone's inaugural earnings call as a public company. I wanted to start today's call by thanking all of StepStone's employees for their hard work and commitment during these unprecedented times. We would also like to thank our clients for their partnership and the trust they continue to place in us. Finally, many thanks to all of our new shareholders for your vote of confidence. As you know, we were able to successfully transition to a public company in September and are looking forward to continuing our journey to drive long-term value for our clients and shareholders. When we created StepStone, some of our founding principles included an entrepreneurial spirit and a strong equity culture. The IPO provided us with an opportunity to broaden equity ownership and a new tool that allows us to attract, retain and reward our team members. And we're proud to say that we now have over 500 employees that are Step shareholders. Slide 2 of the presentation provides an overview of the results and highlights for the quarter ended September 30, 2020. Asset growth remained strong, with total assets under management up 23% over the last year to $72 billion. This was driven in part by the addition of approximately $3 billion in new separately managed account capital and approximately $1 billion in fundraising across our focused commingled funds, which Mike will walk through in more detail later in the presentation. Our fee-earning AUM increased 22% during the last 12 months to $44 billion. Looking ahead, undeployed fee-earning capital, or capital on which we will earn fees once deployed or activated, stood at over $16 billion at the end of the quarter, and gross accrued carry increased by $158 million during the fiscal second quarter or 48% to $486 million. Turning to a summary of our financial results. The rising fee-earning AUM translated into strong growth in management and advisory fees, adjusted net income and fee-related earnings. Fee-related earnings totaled $28.2 million for the quarter, an increase of 125% year-over-year, and included approximately $8.5 million related to the final close and subsequent retroactive management fees for StepStone Real Estate Partners IV. In turn, adjusted net income totaled $18.3 million or $0.19 per share for the quarter, up 59% year-over-year. Now with a brief refresher, starting on Slide 4, we provide an overview of StepStone and our positioning in the private markets ecosystem. In our view, StepStone maintains durable competitive advantages across 5 key areas. First, our focus on customized solutions allows us to build portfolio specifically tailored to meet the needs of our clients. Second, we have built a truly global yet local firm operating at scale with 19 offices across 13 countries, with nearly 40% of our team based outside of the U.S. and approximately 2/3 of our management and advisory fees coming from clients based outside of the U.S. Third, we have invested heavily in proprietary technology that not only improves our operational efficiency, but also allows us to capture and analyze large amounts of data that flow through the StepStone platform. Fourth, we have built specialized capabilities and expertise across the private equity, infrastructure, private debt and real estate asset classes, enabling us to provide clients with a complete private market solution. And finally, we maintain a large and experienced team, a decentralized team-of-teams organizational structure and an entrepreneurial culture, empowering our teams to drive the growth you've seen in our business to date. Turning to Slide 5. StepStone maintains an essential position in the private markets ecosystem. We work closely with our clients or limited partners to help facilitate the allocation of over $40 billion into the private markets on an annual basis by sourcing and analyzing over 3,200 investment opportunities per year alongside of our GP relationships. This allows our clients to leverage the StepStone platform to cover the increasingly global and the increasingly complex private markets in an efficient, informed and cost-effective way. And the StepStone platform is becoming more powerful over time. As we work with more clients, we allocate more capital across a greater number of GP relationships, resulting in access to more data and more deal flow, helping us generate better returns and attract additional clients, thereby completing the virtuous cycle and creating a flywheel effect that is difficult to replicate. Next, we lay out our comprehensive private markets platform on Slide 6. As a solutions provider, it is important to have a number of tools in our toolbox so that we can address a wide variety of challenges that our clients might face. In our case, that toolbox includes the 4 asset classes we previously mentioned; 3 core strategies, primary fund investments, secondaries and co-investments; and a number of different structures that we use to deliver our investment solutions. First is separately managed accounts, which are essentially funds of one that are designed to meet the specific needs and objectives of a single client. At $33 billion of fee-earning AUM, this is the largest part of our business today and demonstrates our dedication to providing customized solutions. Next, you have our focused commingled funds, which are aggregation vehicles that allow us to offer clients access to some of our most specialized investment strategies. As of the end of September, we managed $11 billion of fee-earning AUM and commingled funds or 25% of our total fee-earning AUM base. Finally, we have our advisory and data services as well as our portfolio analytics and reporting offerings. Here, we work in more of an advisory capacity on everything, from initial portfolio construction and design to the ongoing monitoring and reporting of existing investments and everything in between. The advisory business, which is reflected in our $241 billion of assets under advisement, is part of what gives us our scale in the marketplace, allowing StepStone and its clients to deploy over $40 billion into the private markets on an annual basis and results in a significant advantage in deal flow, data and analytics. Before I hand it off to Mike, I would like to reiterate our deep appreciation for all of StepStone's team members for their ongoing passion, commitment and hard work. We remain committed to leveraging the firm's durable competitive advantages around scale, diversification, geographic reach and proprietary data and technology capabilities to continue to provide customized and integrated investment solutions to our clients. With that, I'll pass it over to Mike McCabe, our Head of Strategic Planning. Mike?

Great. Thank you, Scott. One of StepStone's key competitive advantages is the breadth and depth of the firm's full-service model, as shown on Slide 6. We believe we have built the most comprehensive solutions platform for the private markets by providing asset management, advisory and data solutions and portfolio and analytics and reporting across asset classes, strategies and solution structures. Turning to Slide 7. We are operating at scale across our private equity, infrastructure, real estate and private debt asset classes, which we believe is essential for developing holistic solutions in today's marketplace. Focusing on our investment professionals team, while we have 90 dedicated investment professionals in private equity, we have even more outside of private equity, demonstrating our commitment to fielding the industry-leading teams and experts across each asset class. Our in-house technology platforms and analytical tools, coupled with the tremendous amount of data that flows into our platform, allow us to make and to enable our clients to make better investment decisions, thereby broadening the relationship with clients across solutions. SPI is our front-end investment decisioning tool, overlaying the information we collect from fund managers during due diligence with analytical tools and the qualitative views of approximately 200 investment professionals. OMNI is our back-end portfolio monitoring software that is used to track and analyze portfolios with over $520 billion worth of commitments. Now turning to Slide 8. The growth of our total asset footprint has been compounding by 60% per year since inception and continues to experience strong growth today. And while we are proud of this growth we have achieved to date, we're equally excited about the growth that we believe lies ahead. Turning to Slide 9. Capital formation continues to drive AUM growth for both managed accounts and commingled funds. We signed up approximately $3 billion of new SMAs during the first -- during the second fiscal quarter and approximately $8 billion for the last 12-month period. Most of the managed account growth came from either reups or expanded mandates with existing accounts. We also successfully invested over $3 billion from SMAs, that they manage their fees on net invested capital. Total undeployed fee-earning capital stands at $16 billion as of September 30, 2020. We raised a total of $1 billion last quarter in our commingled funds, largely attributed to the final close of StepStone Real Estate Partners Fund IV, or SREP IV, which raised a total of $1.4 billion, double the predecessor fund $700 million. During the last 12 months through September 30, we raised a total of $3 billion, including final closings for the real estate fund, StepStone's Secondary Fund IV and our Senior Corporate Lending program as well as first closings on our next vintage growth equity and private debt programs. Net advisory client additions increased AUA by $18 billion over the last 12 months. As discussed during the IPO roadshow, our advisory solutions are a central focus for our firm. However, there is no meaningful correlation between AUA and revenue, which are typically fixed fee retainer-based mandates. Next, the charts on Slide 10 highlights the scale and diversification of our platform across the private markets. Whether measured by AUM or by AUA, approximately half of our asset footprint comes from infrastructure, real estate and private debt. Our culture is to listen to our clients who are increasingly seeking to work with our specialized teams across asset classes in a holistic way. In fact, 1/3 or a little over 1/3 of our clients work with us in more than 1 asset class. Slide 11 shows the longer-term progression for fee-earning AUM by commercial structure on the left and asset class. While fee-earning AUM has risen 31% from the end of March 2018 through September 2020, it's important to note that the commercial structure mix has remained steady, with SMAs representing 3 quarters of our fee-earning AUM and commingled funds accounting for roughly 25%. Importantly, the asset class mix continues to grow in favor of real estate, private debt and infrastructure, reinforcing the power of a diversified platform. Slide 12 walks through the longer-term progression for asset management and advisory fees. Management fees, which account for around 80% of our total management and advisory fee revenue, have grown 36% annually from $100 million in fiscal year 2018 to $217 million for the 12 months through September 30, 2020, with our overall blended management fee rate holding relatively steady at 53 basis points. Advisory fees, or revenues from our fixed fee retainer, project-based agreements, have experienced an annual growth rate of 12% during the same period. With that, I'll now hand it over to our Chief Financial Officer, Johnny Randel, for a more detailed discussion around our financials. Johnny?

Thank you, Mike. I will now move to Slide 14 to touch on financial highlights for the quarter. Before speaking to the numbers, the key points we would make on our financial performance are: one, our continued strong fee-earning asset growth is driving positive revenue trends; number two, we have benefited throughout this fiscal year from a low G&A expense environment given restricted travel during the pandemic. We view this environment as temporary and would expect resumption of previous travel activities once conditions normalize; and three, we benefited during the quarter from the retroactive fees related to the SREP IV final close. And now to touch on the highlights. The 22% increase in fee-earning assets drove management and advisory fee increases of 41% for the quarter, 33% year-to-date. Fee-related earnings for the quarter increased 125% and 89% year-to-date driven by that fee revenue growth. FRE margins, as shown in the table below, expanded to 37% for the quarter and stood at 33% year-to-date, both much higher than prior year period. And margin improvement in the quarter was driven by a revenue growth but is temporarily buoyed by the retroactive fees and favorable expense environment previously mentioned. Pretax adjusted net income and after-tax ANI per share increased 59% for the quarter and 43% year-to-date. And on the last bullet, we have provided the nonrecurring impact of the SREP IV final close on revenue, FRE and ANI. In the third line of the table, Scott and Mike both mentioned the $16 billion of undeployed fee-earning capital. Again, this is capital that will generate fees as this capital is deployed over the next few years, in line with the respective investment periods of these programs. Gross realized performance fees are lower for the quarter and year-to-date period, reflecting lower realizations across our underlying portfolios during the time period. We encourage a longer-term view of these trends given the timing uncertainty, and have a slide in the appendix, Slide 23, to provide more detail on quarterly and LTM trends. Adjusted revenues or cash revenues, which is at the bottom line of the table, increased 30% for the quarter and 22% year-to-date. Turning to Slide 15 to discuss core revenue metrics. We are showing year-to-date on the left and last 12-month periods on the right. In the top chart, fee revenue is up 33% year-to-date and 31% for the last 12 months, with strong growth across both advisory and management fee revenue. The fee-earning asset growth and increased advisory client activity is driving this growth. We have provided a breakdown of SMA and commingled fund growth, highlighting this growth across all programs and periods shown. In the middle chart, we are showing gross performance fee trends. Gross realized performance fees are $5 million lower to year-to-date and $2 million higher for the last 12 months. As mentioned, Slide 23 in the appendix has more detail over time. Finally, on the bottom chart is adjusted revenues. This is the sum of the fee revenue in the top chart, gross realized performance fees in the middle chart. So the trends driving those 2 revenue metrics then apply to adjusted revenue, which is 22% higher year-to-date, 26% higher over the last 12 months. Slide 16 focuses on 2 core profitability measures. Fee-related earnings, our core operating income, increased 89% year-to-date and 76% over the last 12 months. FRE trends are driven by the fee revenue growth mentioned as well as the favorable expense environment we have experienced this year these trends have led to strong margin improvements for the reported periods. Moving to adjusted net income at the bottom of the page, this is net realized or cash income attributable to StepStone. ANI is a non-GAAP measure and Slide 21 in the appendix provides a calculation of this metric. The main drivers of ANI are fee-related earnings and realized performance fees. The trends discussed in those metrics will drive overall ANI trends over time. ANI increased 43% year-to-date and 49% over the last 12 months. Both of these metrics benefit from the onetime retroactive fee revenue associated with the final close of SREP IV and the favorable low expense environment. We would expect expense trends to resume to a more normalized level over time, and we also will see the introduction of expenses associated with being a public company going forward. Turning to Slide 17 and key balance sheet items. We're showing gross accrued carry and balance sheet investments over the past several quarters. The key message on carry is that this accrued carry covers a broad diverse set of programs and investments, and we provided some key stats on the portfolio diversification in the bullet points. And when you look at the trends of accrued carry on the top chart, the accrued amount is up 22% from the prior year to $486 million. We think of this carry as a backlog of revenue that will convert to cash over time, assuming portfolios continue to perform. When you look at the recent quarters, you will see the decline in our first quarter and then the subsequent increase in the second quarter, impacting the year-to-date unrealized carry trends you'll see in the income statement. This is driven by changes in the underlying portfolio valuations on a one quarter lag. The bottom of the page, you can see trends in the value of our proprietary investment portfolio, which has increased 24% over the last 12 months to $57.9 million, and unfunded commitments to these programs stood at approximately $61 million at quarter end. Moving to Slide 18. The key takeaways from this page are that: one, we have a large pool of capital, approximately $38 billion on which carry or incentive fees may be earned; two, this capital is widely diversified across a high number of programs, with many of those already reflecting some accrued carry position; and three, that's highlighted next to the pie chart on the left, a large portion of this accrued amount was tied to programs with vintage years prior to 2015, which means that these programs are mature and now largely outside of their investment period and in harvest mode. Approximately 62% of this accrued carry is tied to SMAs or commingled funds that have American or deal-by-deal carry waterfalls. We have additional slides for your review in the appendix. And I'll now turn it back over to Scott to close this out. Scott?

Thank you, Johnny, and thank you, everyone, for your time and interest. We're excited to have the transition to a public company under our belt and are excited about the results of our fiscal second quarter. And we look forward to continuing to discuss our progress on future calls. So with that, why don't I turn it back over to the operator to open up the lines for any questions. Operator, please open the call.

[Operator Instructions] Our first question comes from Adam Beatty with UBS.

I just want to ask about where you're seeing deployment opportunities these days. And maybe a little bit more broadly, given kind of your bird's eye perspective and all the data that you have around private markets, fund sponsors, kind of the health and the opportunities in the sector right now. We've heard from others that there may be consolidation pressures or that single asset funds may be experiencing distress. But just wanted to get your thoughts on that.

Sure. Thanks, Adam, for the question. This is Scott. I'll start and others may chime in. But on your first question in terms of where we are seeing deployment opportunities, that has evolved throughout the course of the year. You can imagine that in the first half of 2020, things slowed down pretty significantly, really across asset classes and across strategies, not unexpected given the COVID dislocation. I think what we've seen in past periods of dislocations, that you do see a slowdown in new investment activity. Really, we've got a bit of a bid-ask spread between buyers looking to put capital work and sellers looking to exit. But I think when you do look at the trends quarter-over-quarter, we have seen deal flows start to come back. It has probably come back really in pockets as opposed to across the board where you've seen certain geographies. When you think about Asia, for example, that have come back sooner than others. You've seen certain sectors that have been more active. And it really tends to be the sectors that have held up better throughout the COVID crisis. So what we're seeing at this point is that there are certain segments of the market from a sector standpoint within private equity. That would be areas like IT and health care. Within infrastructure, that might be areas such as communications and renewables that have come back sooner than others. We're also starting to see opportunities emerge in areas such as the secondaries market. Again, it was down pretty significantly in the first half of the year. But we're seeing new types of transactions, whether those are GP-led secondaries in the private equity space, whether those are opportunities to buy portfolios of assets in the private debt market that are helping to drive deployment today. To your second question on the health of private markets funds more generally. Look, I think what I would say is that one of the characteristics that is really helping certain fund managers is diversification. I think you mentioned sort of single fund or -- types of managers. I think throughout the calls we have done with managers throughout the private market universe, because of the different ways that COVID is impacting different sectors and different individual portfolio companies or assets, I think those that are most highly diversified are certainly benefiting in this environment.

Our next question comes from Alex Blostein with Goldman Sachs.

Congrats on your first call as a public company. I wanted to -- I was hoping to build on the question around deployment. And maybe not so much about the areas where there are some interesting opportunities, but really more around the pace. And going back maybe a couple of months, you guys talked about that the pace of deployment has really slowed down given all the uncertainty. But given the fact that macro conditions are starting to get a little bit better, maybe talk to us a little bit about how some of that $16 billion of shadow AUM will translate into actual management fees as we look forward to the next couple of quarters or a year or so. And also maybe you guys could hit on the timing for your next round of commingled funds as they kind of come into the run rate, because I think that was also one of the areas where the macro conditions over the last couple of months were a little bit more challenging but might look a little bit brighter going forward.

Sure. Thanks, Alex, for the question. It's Scott again. So on the deployment question, I think -- look, one of the things that's hard to predict is how that will look from a quarter-to-quarter standpoint. But you heard Mike made the comment during the prepared remarks that we have invested approximately $3 billion from separate accounts that pay on invested capital over the last 12 months. So I think that, that gives you a good sense. If we think about it over a bit of a more extended time period, what that has looked like, that certainly has not been evenly invested across the last 4 quarters though. And I think as we think about the investment pace for the $16 billion of undeployed fee-earning capital, most of those accounts have a 3- to 5-year investment period, really meant to provide us with flexibility so that there's no pressure to invest if we're not seeing sufficient opportunities. But also that we can -- so that we can actively invest if we do see opportunities. And so I think -- thinking about it over a 3- to 5-year time period is probably the right way to think about how that $16 billion will be invested. In terms of your question on the commingled fundraises, we've mentioned that we recently closed on StepStone Real Estate Partners IV as well as StepStone Secondaries Opportunity Fund (sic) [ Secondary Opportunities Fund ] that closed at the end of March. We mentioned that we are currently in market and recently held first closings on StepStone Tactical Growth Fund III as well as StepStone Senior Corporate Lending Fund II. So from a commingled fund standpoint, that really just leaves StepStone Capital Partners, our private equity co-investment fund. The last StepStone Capital Partners fund was raised in 2018 and ought to be set to return to market, probably sometime early next year.

Great. And I guess, speaking of the co-invest find, your public peer a couple of days ago talked about some changes in pricing that they're seeing in their co-invest fund structure kind of flipping from paying on committed capital to paying on deployed in exchange for maybe a little bit of a higher percentage of carry. Is that unique? Is that something you guys are starting to see more in the marketplace as some of the LPs trying to mitigate J-curve dynamics? So just got a broader question around pricing. Are you seeing any changes in the pricing dynamics for your product lineup?

I don't think seeing any major change. I think you know that we have offered fees on invested capital in our separate account business for a number of years, and that's really what has driven the $16 billion of undeployed fee-earning capital. I think that's something that we will continue to do, really working with our clients on ways that we can help achieve their needs, and in this case, the need to help mitigate the J-curve. And whether that's through deploying through certain strategies, like secondaries, which help in that effort, or whether that's through fee structures that help aid and mitigating the J-curve, I think that's something you'll see us continue to do.

Our next question comes from Jeremy Campbell with Barclays.

Just wanted to get a quick one in here. Just kind of wondering what you're thinking here with -- a little bit more of a supportive macro backdrop around time line of realization since a lot of the stuff seems to be a little bit longer dated.

Sure, Jeremy. This is Scott. I can start and others may want to chime in as well. Look, on the realization front, I think similar to my comments on the new investment front, I think we are starting to see an improvement. The numbers are certainly down year-over-year, not surprisingly, given the disruption from COVID. But when you look at things quarter-over-quarter, I think we have seen some progression from the calendar Q1 this year to Q2 and through to Q3. That's true both in terms of our carry-generating portfolios and you've seen in the gross realized performance fees some slight improvement quarter-over-quarter over the last few quarters. You've also seen that across the broader universe of funds that we monitor, where we saw that September and October were some of the more active months in terms of distribution activity. In private equity, in particular, September was one of the most active months for distributions that we've seen in the last few years. And I think there's a few things driving that. Obviously, there was a point in time early in the COVID crisis where it looked like it may be a year or more before you started to see realizations come back. But obviously, as the market rebounded and has a variety of different exit routes opened up, you really all are open today, whether it's selling to financial sponsors who obviously have dry powder they're looking to invest, selling to corporates who may be looking to play offense at coming out of the COVID crisis. The IPO market window has been open. You've seen dividend recapitalizations. You've seen new exit routes emerging, whether through SPACs or GP-led continuation vehicles. And so I think those are some of the things that, in our minds, are starting to drive an uptick in realization activity.

Great. And then just -- I know you guys -- you haven't kind of fully rolled out a capital return policy. Just wondering if you can take us through your thought process around developing such a policy? What kind of you're looking for or evaluating, et cetera? That would be helpful.

Jeremy, it's Mike. The question broke up a little bit at the end. Would you mind repeating it?

Sure, yes. I know you guys haven't had a fully baked capital return policy yet. But just kind of wondering if you can take us through your thought process around the development of such a capital return policy, maybe some of the things you're looking for or evaluating from here.

Sure. I mean these are things that we're currently working on, certainly as a newly minted public company. We are cash flow-generative, and we have quite a bit of cash on the balance sheet that we've raised from the IPO. And we're going to continue to look at opportunities across the asset classes and across the industry. We are, and as we discussed in prior months, also discussing a dividend policy, and we would hope to sit with our new public Board in the coming months to discuss what that policy might look like. But you could expect to see something rolled out sometime later this year.

Our next question comes from Ken Worthington with JPMorgan.

Maybe first on Conversus. I think you guys kicked off your first close of the CPRIM product. Can you talk about receptiveness from investors for this product? I think the first close was $35 million, if I have that right. How do you see the cadence of growth sort of developing from here? Is this something we're going to see sort of either monthly or quarterly closes on? Or do we see sort of larger, more infrequent closes over time? And then along these lines, you were selling through a handful of distributors. What are the intentions to either deepen your position with those existing distributors or broaden beyond the existing group?

Thanks, Ken. This is Jason. You are right, as we did press release, we had the first close for the CPRIM product in October. That product, just as a reminder for everyone, that is a '40 Act-registered perpetually offered fund. We also have an offshore feeder that went live a couple of weeks ago as well. So we're now starting to market outside the U.S. Additionally, it does take monthly subscriptions and will offer quarterly liquidity. We have started with the U.S. RIA channel and are broadening that distribution base across not only the RIAs here in the U.S. but the independent broker-dealers and have begun due diligence processes with the wires. And then outside the U.S., working with a number of different banks and private wealth channels to begin distribution there as well. This will be a product that is broadly distributed across many distribution channels and different firms. So it's not exclusive or tightly knit to a select group of channels. And we look forward to providing you and others the quarterly update on how inflows are going.

Okay. Great. And then in terms of demand for the business, we've seen high-profile press attention for Apollo's Leon Black and Vista's Robert Smith. Does this sort of publicity impact the demand for private market due diligence, which is sort of implicitly one of your value-added services to clients? And if it does, is there a reason to see more interest from certain of your client segments versus others?

Thanks, Ken. This is Scott. Certainly, a couple of situations that we are monitoring quite closely. But I don't know that we have seen a major change to the demand for our services or those of others as a result of that publicity at this point in time. Something we'll continue to monitor, though.

Okay. Well, maybe I'll punt on that then. And just because of the IPO, what are you seeing? What are you hearing from -- feedback from your LPs? And is being public sort of accelerating your fundraising activity as it increases your profile?

I do think it's helpful. I think if you think back to some of the reasons that we talked about going public is really to broaden the equity ownership base amongst our employees, was to provide us capital to the -- access to the capital market and was to increase both the transparency as well as the brand recognition. And I do think that in this market, in particular, where it's more difficult to travel, more difficult to build new relationships, that those sizable and better-known firms are at an advantage in terms of developing new relationships. I think we're starting to see that benefit.

Our next question comes from Peter Kaloostian with Morgan Stanley.

Just on the NCI, I was hoping you could talk about the profitability of your minority-owned business versus the profitability of the firm overall? And specifically, how different are the FRE margin profiles? And do you see the differences evolving over time?

So maybe...

Yes. I'll start -- sorry, go ahead, Mike. Do you want to go ahead?

Go ahead, Johnny.

No. I'm just going to say, and I think what we expect over time, they'll largely converge. We don't -- we do operate as a single segment, so we don't provide sort of profitability metrics that -- the different asset class levels. We will be disclosing and have disclosed sort of different metrics to kind of give people some sense. We are providing you the fee-earning AUM by the different asset classes, and our prospectus and our Q will have the fee rate on that AUM for the nonprivate equity asset classes. And then you can see in the NCI line what belongs to those team members of ours that don't roll up and don't flow through to the bottom line of StepStone Group. So we kind of provide some buckets, but we don't think about it that way. We really just think of it as one business. We operate that way. But there is certainly that NCI piece. And in the quarter with the SREP IV final close, you will see it elevated this quarter from prior periods. And so we don't really provide that level of guidance, but we think we've provided at least enough data points to give people a sense of how they've performed. But Mike, I don't know if you want to add to that.

No. I think that captures it, Johnny. Thanks.

Thank you. We have come to the end of the question-and-answer portion. I would like to turn the call back over to Mr. Scott Hart for closing comments.

Great. Well, thank you again for joining our call this evening. We certainly appreciate your interest in StepStone and look forward to continuing to update you on our progress during future calls. Thanks very much.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation. And have a great day.