Greetings. Welcome to StepStone’s Fiscal Fourth Quarter 2023 Earnings Call. At this time, all participants are in listen only mode. A question-and-answer session will follow the formal presentation . Please note this conference is being recorded. I will now turn the conference over to your host, Seth Weiss. You may begin.

Thank you. Joining me on the call today are Scott Hart, Chief Executive Officer; Jason Ment, President and Co-Chief Operating Officer; Mike McCabe, Head of Strategy; and Johnny Randel, Chief Financial Officer. During our prepared remarks, we will be referring to a presentation which is available on our Investor Relations Web site at shareholders.stepstonegroup.com. Before we begin, I'd like to remind everyone that this conference call as well as this presentation contains certain forward-looking statements regarding the Company's expected operating and financial performance for future periods and our plans for future dividends. 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 and actual dividends declared may differ materially from those expressed or implied by these forward-looking statements due to changes in circumstances or a number of risks or other factors that are described in the Risk Factors section of StepStone's most recent 10-K and which will be updated in our upcoming 10-K. These forward-looking statements are made only as of today. And except as required, we undertake no obligation to update or revise any of them. In addition, today's presentation contains references to non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our earnings release, our presentation and our filings with the SEC. Turning to our financial results for the fourth quarter of our fiscal 2023. We reported GAAP net income of $56.8 million. GAAP net income attributable to StepStone Group Incorporated was $28.8 million. We generated fee related earnings of $37.8 million, adjusted net income of $27.1 million and adjusted net income per share of $0.24. The quarter reflected retroactive fees resulting from an interim closing of StepStone’s multi strategy global venture capital fund that contributed $0.5 million to revenue, fee related earnings and pretax adjusted net income. This compares to retroactive fees in the fourth quarter of fiscal 2022 that contributed $3.4 million to revenue and $3 million to fee related earnings and pretax adjusted net income. Before turning to Scott, I would like to remind everyone that we’re holding an Investor Day on Tuesday, June 6th, in New York. Registration and additional details are available at investorday@stepstonegroup.com. In-person capacity is limited, so please register as soon as possible to request on-site attendance. A live webcast will also be available on that same Investor Day Web site or through our shareholders' site. I'll now hand the call over to Stepstone Chief Executive Officer, Scott Hart.

Thank you, Seth and good afternoon, everyone. Turning to Slide 5, we delivered strong results in our fiscal 2023 amid a difficult operating environment as we grew fee related assets under management by 14% and full year year fee related earnings per share by 19%. Focusing on our most recent quarter, we generated gross AUM additions of over $5 billion. This strong fundraising reflects balanced growth across asset class, commercial structure and geography. We have deliberately built a diversified platform that’s designed to thrive across market cycles and this quarter's result exemplifies StepStone's ability to prosper even in difficult environments. Turning to our financial performance. We generated the related earnings of $38 million for the quarter, up 5% from the prior year. Excluding the impact of retro fees in both this quarter and the prior year's period, we would have grown fee related earnings by 13%. We produced an FRE margin of 28% for the quarter and 31% for the full fiscal 2023, which is in line with the expectations we set heading into the year. We believe a full year view of margins is most appropriate given the seasonality of expenses and the timing of revenue as growth can be uneven and dependent on timing, deployment, and activations. We earned $27 million in adjusted net income for the quarter or $0.24 per share. This is down from $44 million or $0.38 per share in the fourth quarter of last year, driven primarily by lower performance fees and lower contribution from retroactive fees. Looking forward, we believe there are structural tailwinds for the private markets that will present growth opportunities well into the future. In addition, there are StepStone specific growth drivers given the continued runway within each of our asset classes in our private wealth business. While there are…

Thanks, Scott. Turning to Slide 7. We generated $16 billion of gross AUM inflows during the last 12 months with $6 billion coming from our commingled funds and $10 billion coming from our managed accounts. Slide 8 shows our fee earning AUM by structure and asset class. For the quarter, we grew fee earning assets by roughly $2.5 billion, driven by contributions from managed accounts across asset classes and additional closes of our debut commingled infrastructure coinvestment fund and our multistrategy global venture capital fund. We also generated notable growth in our undeployed fee earning capital, which increased from $14 billion to nearly $16 billion, driven by several new client wins, managed account re-ups and closings related to our commingled real estate fund that Scott just mentioned. We anticipate activating fees on the fund near the end of this calendar year. We continue to generate steady growth in our private wealth platform, which brought our aggregate fee earning AUM to over $1.5 billion at the end of the quarter. Our investment performance continues to be very strong, with SPRIM, our Evergreen private markets fund for accredited investors, generating a 29% annualized return since inception. And SPRING, our Evergreen venture and growth equity fund off to a very strong 21% return since its launch in November of 2022. We continue to generate steady monthly subscriptions of over $60 million in our private wealth platform with contributions spread across distribution channels and products. Slide 9 shows the evolution of our management and advisory fees. We generated a blended management fee rate of 54 basis points, which is higher than prior years due to a mix shift toward commingled funds from the contribution of our expanded venture capital platform. We produced over $4.30 per share in management and advisory fees over the last 12 months. representing an annual growth rate of 25% since 2018. Before turning the call over to Johnny, I am pleased to announce the declaration of our first supplemental dividend of $0.25 per share, which will be distributed in addition to the $0.20 per share normal quarterly dividend. This approach enables us to take advantage of our capital efficient business model by maximizing distributions to our shareholders in a transparent manner. As a reminder, we plan to generally grow our base dividend in line with fee related earnings, while our supplemental dividend will be driven by net realized performance related earnings subject to any discretionary capital uses. Future dividends are, of course, subject to Board approval. We are thrilled to be able to deploy a healthy total payout even during periods when the realization environment is soft. And we expect our approach will allow shareholders to tangibly reap the benefits of more substantial carrier monetization when the realization environment is stronger. Importantly, our net accrued performance fees currently stand at nearly $600 million, which serves as a backlog for future distributions. With that, I'll turn the call over to our CFO, Johnny Randel.

Thank you, Mike. I'd like to turn your attention to Slide 11 to speak to our financial highlights. For the quarter, we earned management and advisor fees of $133 million, up 18% from the prior year. The revenue increase was driven by growth in fee earning AUM from commingled funds that were activated earlier in the year as well as continued deployment in fundraising. We generated an FRE margin of 28% for the quarter below last quarter's 33% margin and below the fiscal 2022 fourth quarter margin of 32%. As a reminder, prior year quarter's margin benefited from retroactive fees. The March 31st period tends to be our seasonally weakest margin quarter driven primarily by annual salary adjustments and the associated payroll tax resets for US staff, which go into effect on January 1 of each year. For the full year, our FRE margin was 31%. This is a strong base upon which we anticipate we will expand over time. We continue to expect margins to migrate into the mid-30s over the long term as we balance profitability with sustainable growth. As we have commented in the past, the path may not be linear. Shifting to expenses. Compensation was up sequentially, driven primarily by annual salary raises and modest increases in headcount. G&A also increased sequentially, driven by occupancy and professional fees. Gross realized performance and incentive fees were $20 million for the quarter, generally consistent with last quarter and reflective of a continued lower transaction and realization environment. We anticipate realized performance fees to remain muted in the near term. Income attributable to noncontrolling interest was $10 million, generally in line with the level of the last two quarters and is a fair baseline for your models moving forward. Number will move around slightly quarter-to-quarter but we expect NCI…

And our first question comes from the line of Ken Worthington with J.P. Morgan.

I'd say two for me. Maybe first, retail continues to build at a pretty consistent dollar level from quarter-to-quarter. $700 million went to $1 billion to $1.3 billion to $1.6 billion. Can you talk about the build-out of distribution, including the more recent additions of Europe and Australia? And while things probably appear to be quite stable on the surface, I'm sure there's puts and takes beneath the surface. So how is distribution sort of seasoning and growing inside the US versus these newer platforms internationally?

So totally fair characterization, there are puts and takes. Remember now we've got not only SPRIM but also SPRING and it's actually four different funds, US in Lux for each of those. The flows have been broadly consistent quarter-to-quarter in aggregate. The distribution syndicate continues to grow. We're approved on over 150 platforms now globally. The team build-out within the private wealth team has historically been almost entirely US. We are building out dedicated European coverage now with a few people on the ground. And outside of those two geographies, distribution has largely been driven by our institutional BD team that does have relationships in the local markets. In terms of the flows, I would say the US continues to be stronger than rest of world. And I think that that's consistent across both SPRIM and SPRING, and that's really just driven by seasoning the distribution efforts on both of the Lux platforms is just much more nascent. And so therefore, we're continuing to build out that syndicate, and it just takes a bit once you're approved to start seeing flows. The other thing to remember outside the US relative to the US market is that the number of super large players like you've got in the US, it's a bit more limited globally as a percentage of the platforms that are out there. So think of it more akin to the RIA and IBD type flows rather than wire type flows in the main.

And then just on the -- I guess, continuing on the flow side. I believe you had seven or so funds in market this past quarter. Which of these funds actually did have closes in the March quarter and what are the expectations in terms of closes for June?

We do continue to have a number of funds in market and that will continue to be the case. And maybe I'll just give you an update on all of those funds that are currently marketing, but starting with the ones that had interim closings. Our multi-strategy global venture capital fund held interim closings and currently stands around $750 million mark today. We did mention during the prepared remarks that our real estate secondaries fund held a first close during the quarter and currently stands at just over $900 million of commitments. We held interim closings on our inaugural infrastructure co-investment fund, which now stands a bit shy of $500 million today. There are others that continue to be in market like our private equity secondaries fund, which stands at roughly $1.6 billion. And we also, subsequent to quarter end, had a closing on our multistrategy growth equity fund as well.

Our next question comes from the line of Ben Budish with Barclays.

You mentioned that the margin tends to be lumpy and doesn't necessarily go up immediately over time. I'm just curious any thoughts you can share on fiscal '24 and what your top investment priorities for the year, if you can kind of share in advance of your Investor Day coming up?

Our 31% FRE margin for the year was a very strong result and largely in line with the guidance we have provided throughout the year. And when we look back at the trend, since we took the company public in 2020, we've expanded margins by nearly 500 basis points. Specifically for the quarter, as you mentioned and as Scott and Johnny mentioned, we saw some fluctuations. We did see a step-up in compensation as we've seen in the fourth quarter of prior years. G&A expenses were also, particularly travel as our teams are out there supporting existing clients and developing new relationships. And lastly, as Scott touched on this, the timing of fund closings, activations and capital deployment are a little bit tricky to predict. And so we describe our margins as nonlinear in the past and currently on today's conversation, which is why we don't really either look at or manage our business from a quarter-to-quarter basis. We look at margins really over the medium to long term. And in the past, our guidance for margins has been in the mid-30s over the medium to long term and we don't see any reason to change that guidance. The priorities that we have as an organization really are to support the growth and profitability of the firm and just to name a few. As Jason mentioned, we're continuing to expand our retail franchise. And so you can expect us to continue to invest there, developing products like SPRING as well as developing new products for our institutional investors like our infrastructure coinvestment fund, providing seed capital for these new launches and continuing to build out the team globally are really the priorities we're focusing on this year.

And then just maybe following up on Ken's question before. Scott, you gave a great overview of all the commingled funds in the market. Just any color you can share on what you're seeing on the side. It looks Like the last several quarters, you kind of had increasing levels of contributions, and maybe what does that look like over the next, say, 12 months?

So look, on the SMA side, I think we're seeing similar trends to what we're seeing in the commingled space. And if I had to characterize it, I would say that the re-up conversations continue as planned and those re-ups have continued to take place at a high rate. And I would say that new investor conversations, look, they're taking time. And even if that is the period between initial approval and the ultimate signing of an account or getting to that initial approval, some of those new separate accounts are taking time but they are happening. And we're pleased to say that in the current quarter did have a combination of both re-ups and sizable new separate accounts that help drive that $5 billion of inflows, AUM inflows during the quarter. As we look ahead, we continue to have a number of potential re-up conversations and very active conversations with new clients as well. Some of these are multi-asset class in nature, some are created by the combination with Greenspring where we're finding that our new and strengthened venture capabilities, combined with our historic focus at StepStone on providing separate accounts, is proving to be quite valuable in this environment. So I think we'll see continued activity on the SMA front in the year ahead.

Our next question comes from the line of Michael Cyprys with Morgan Stanley.

This is here standing in for Mike. I just want to circle back to the discussion about venture. And when you talk to LP, just curious what's their attitude right now at this point in the cycle is towards DC, is it something that they're looking to avoid or they look to stay invested? Is there any color you can share on that?

So I mean I appreciate the question. It's one of the areas where it's probably a bit difficult to generalize because if you separate between the impact on existing portfolios and then look at the go-forward investment opportunity, those are two very different questions. And so I think for those investors that were heavily allocated to the asset cloud the last several years, there clearly have been markdowns and challenges in the portfolio. Those markdowns look very different if you compare late stage versus which has been most heavily impacted with early stage or growth equity. But as you think about the go-forward investment opportunity, I'd say there is growing excitement, for example, about the secondaries opportunity. And obviously, we highlighted during the prepared remarks the growth equity opportunity as well. Now in some cases those are different categories of investors that we're now seeing look at the venture space. In some cases, they historically had trouble accessing venture, but in this case are not heavily exposed to the asset class today. And I think a lot of the conversations, I know we've said this on prior quarter calls as well with investors, you hear the comment that, look, we've been thinking about starting an allocation or starting a venture program, and we're more excited about doing that today in this valuation environment than where we were a couple of years ago. And so again, I often find myself having to distinguish between the impact on the existing portfolio versus the excitement around the go forward investment opportunity.

And if I could just follow up quickly. In terms of the opportunities on the secondary side, I wonder if you could help frame what that opportunity looks like, any numbers you can put around that in terms of the, I guess, any step-up in deal flow that you're seeing or step-up in completions? I think you talked about sort of rationalization of pricing where folks are starting to look at this and say, well, hey, in this environment, maybe it's not a bad -- this is not such a bad deal as maybe it looked maybe six months ago?

And I might expand -- I'm assuming the question is specific to venture. I might also expand and just talk about the secondary opportunity more broadly. But in venture, look, what you have is over a trillion dollars of unrealized net asset value across venture portfolios today in a number of -- in many cases, there are embedded gains in those portfolios. And even if there is a need to sell at a discount, those investors can still lock in an overall gain on their original investment. I think that is one of the things that is leading to a greater willingness to sell today. Now that's largely in the LP secondary market. But you can imagine, much like the trends we've talked about in the broader secondaries market around GP-led secondaries, around strip sales, et cetera, there are a number of different factors and types of transactions driving deal flow. But I do want to make sure to highlight that -- and I know we have done on prior calls as well, our excitement around the secondaries opportunity, not only in venture but in the broader private equity space, but increasingly in real estate, where you heard us mention the first closing on our real estate secondaries fund, which we think is really tailor made for this type of environment with a strategy developed coming out of the financial crisis and led by a senior and experienced team that's getting great traction on that fund raise. And in other parts of the market, including private credit and increasingly infrastructure as well, where you saw significant amount of primary fundraising coming out of the financial crisis and now to 10, 15 years on, I think that is leading to an increase in potential secondary sales there as well. So I think there's a number of factors driving the overall opportunity today.

And we have reached the end of the question-and-answer session. I'll now turn the call back over to Scott Hart for closing remarks.

Great. Well, thanks, everyone, for joining the call today. Just as a reminder, we look forward to speaking with many of you during our Investor Day on June 6th. And in the meantime, I appreciate your interest in the StepStone story. Thanks, everyone.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.