STEP

StepStone Group Inc. 10-Q Summary: Quarter Ended December 31, 2025

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended December 31, 2025, and the nine months ended on that date. StepStone Group Inc. (SSG) is a global private markets investment firm providing customized investment solutions, advisory services, and data analytics. The company operates as a single reporting segment and manages assets across private equity, infrastructure, private debt, and real estate. As of December 31, 2025, SSG was responsible for approximately $811 billion of total capital, comprising $220 billion in Assets Under Management (AUM) and $591 billion in Assets Under Advisement (AUA).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 73% year-over-year for the quarter and 76% for the nine-month period. This was driven primarily by a surge in performance fees.
• Performance Fees: Incentive fees jumped 830% to $208.0 million for the quarter, largely due to strong performance in the StepStone Private Venture and Growth Fund (SPRING). Carried interest allocations also increased significantly due to higher unrealized appreciation in private equity and infrastructure funds.
• Expense Increases: Total expenses rose 16% for the quarter and 128% for the nine months. The nine-month increase was heavily influenced by a $999 million increase in equity-based compensation, primarily due to mark-to-market adjustments on liability-classified awards related to the StepStone Group Private Wealth (SPW) subsidiary.
• GAAP Loss vs. ANI: While GAAP net loss widened due to non-cash equity compensation and unrealized carried interest reversals, Adjusted Net Income (ANI) increased 52% for the quarter and 19% for the nine months, reflecting strong underlying realized profitability.
• Fee-Earning AUM: Fee-Earning AUM (FEAUM) grew to $138.6 billion, an increase of approximately $17.2 billion compared to March 31, 2025.

Guidance, Outlook, and Risks

• Market Environment: Management notes continued volatility in financial markets due to U.S. trade policy, tariffs, and geopolitical tensions. Despite inflation and elevated rates, the U.S. economy has continued to grow.
• Legislative Impact: The "One Big Beautiful Bill Act" enacted in July 2025 included tax amendments. Management does not expect this to have a significant impact on the full year ending March 31, 2026.
• Operational Risks: Risks include slowdowns in fundraising and capital deployment, which could delay management fees. Additionally, the ability of fund managers to exit investments profitably affects performance fee recognition.
• Dividends: On February 5, 2026, the company announced a quarterly cash dividend of $0.28 per share of Class A common stock, payable March 13, 2026.
• Corporate Governance: As of September 18, 2025, the company is no longer a "controlled company" under Nasdaq rules following the sunset of the Class B super-voting rights. The board is transitioning to a majority of independent directors by September 18, 2026.

Investor Verification Checklist

• Equity Compensation Volatility: Verify the sustainability of the $1.54 billion equity-based compensation expense (9M 2025), specifically the mark-to-market impact of the SPW liability-classified awards, which drove the GAAP loss.
• Realized vs. Unrealized Carry: Distinguish between realized carried interest ($130.0M for 9M) and unrealized carried interest ($338.7M for 9M) to assess cash flow quality versus accounting accruals.
• Non-Controlling Interests (NCI): Review the allocation of net loss to NCI ($369.3M for 9M), which significantly impacts the net loss attributable to SSG shareholders.
• Debt Covenants: Confirm continued compliance with leverage ratios and minimum fee-earning AUM covenants under the $175M Senior Notes and $300M Revolver.
• SPW Valuation: Monitor the fair value assumptions for the SPW profits interest, as changes in projected earnings or trading multiples could materially alter future compensation expenses.