Good afternoon, ladies and gentlemen, and welcome to StepStone's fiscal 2022 second quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this call will be recorded. I would now like to turn the conference over to Seth Weiss, StepStone's Head of Investor Relations. Please go ahead.
Thank you and good afternoon, everyone. Joining me on the call today are Scott Hart, Co-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 website at shareholders.stepstonegroup.com. Before we begin, I'd like to remind everyone that this conference call, as well as the presentation, contains 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 the Risk Factors section of StepStone's most recent 10-K.
Turning to our financial results on slide three for the second quarter of fiscal 2022. We reported GAAP net income of $127.9 million for the quarter ended September 30th, 2021. GAAP net income attributable to StepStone Group Inc. was $62.1 million. We generated fee related earnings of $26.4 million, adjusted net income of $40.1 million, and adjusted net income per share of $0.40. The quarter reflected retroactive fees resulting from additional closes of StepStone's Growth Equity Fund that contributed $2.3 million to revenue and $2.1 million to fee related earnings and pre-tax adjusted net income.
For comparison, the prior year's quarter benefited from retroactive fees related to the final closing of StepStone Real Estate Partners IV, which contributed $9.0 million to revenue, $8.5 million to fee related earnings, and $4.4 million to pre-tax adjusted net income. I'd now like to turn the call over to StepStone's Co-Chief Executive Officer, Scott Hart.
Thank you, Seth, and good afternoon, everyone. We took positive strides this quarter in both our organic growth and strategic advancement. We generated a strong flow of assets, significantly increased the pipeline of future expected fee-earning AUM, produced robust earnings, and closed on the acquisition of Greenspring Associates ahead of schedule. I'll begin with the Greenspring acquisition, which we closed on September 20th. The standalone Greenspring business continued its exceptional performance through closings driven by the strength of the platform, the trusted LP relationships that have been developed over time, and continued LP interest in venture capital. Despite closing well ahead of schedule, the integration is progressing well. We are beginning to operate as one team and already see evidence that our expanded capabilities in venture capital and growth equity are a clear differentiator.
Our combined size, network of relationships, and access to data is already yielding differentiated investment opportunities and due diligence insights. We've also received positive feedback from our clients and observed early indications that cross-selling opportunities will exist given the limited overlap in our client base. Looking at the firm more broadly, as shown on slide four, we now manage or advise on over half a trillion dollars of assets across the private market. Our increased global scale widens our moat and creates a significant competitive advantage as it yields unparalleled data, insights, and deal flow, while our broad scope across private equity, real estate, infrastructure, and private debt makes us a one-stop destination to solve our clients' private market needs.
Shifting to our results on slide five, we generated $40.1 million in adjusted net income for the quarter, or $0.40 per share, up 111% from the prior fiscal year's second quarter. We generated fee related earnings of $26.4 million, down 5% from the prior year quarter. As Seth mentioned, the prior year period included a significant retroactive fee of $9 million, which impacts the year-over-year comparison. This quarter included relatively smaller retroactive fees and 10 days of Greenspring results. Excluding these items, fee related earnings would have been up by 20%. We finished the quarter with $121 billion of assets under management and $67 billion of fee-earning AUM, which includes $11 billion of fee-earning assets from Greenspring.
Excluding the acquired assets, we have organically grown fee-earning AUM by 25% over the last 12 months. We've been operating largely in a virtual environment for most of the last year, but encouraging trends on declining COVID cases and a growing number of administered vaccinations have enabled us to resume in-person activities. I am pleased to report that we have reopened the vast majority of our offices globally, allowing our teams to reunite after nearly two years, and in some instances, meeting face to face for the first time. We have grown dramatically over the last couple of years, and over that time, we have leveraged technology to onboard new employees and collaborate across teams. Ultimately, there is no substitute for in-person connections, and I am excited about what these interactions mean for innovating on our client solutions, the development of talent, and the strengthening of our firm culture.
Shifting to shareholder distributions, I am pleased to announce that we have increased the quarterly dividend to $0.15 per share, a more than doubling of our prior dividend. The increase is a result of our recent earnings growth and our confidence in the sustainability of our run rate. It is also reflective of our capital-efficient business model, which enables us to fuel a robust level of organic growth while still paying out a healthy portion of earnings to shareholders. In September, we celebrated 1 year as a public company. Our public listing enabled us to broaden our equity ownership among our employees, provides a means to attract and retain talent, elevates our brand globally, and serves as a valuable currency to help grow our business, as we demonstrated with the acquisition of Greenspring.
We are proud that since our IPO, our stock has delivered returns to our shareholders well above the market's return. I want to thank the entire StepStone team for their hard work and dedication. Finally, before I hand the call over to Mike, I'd like to take a moment to acknowledge the announcement that we issued earlier today that our co-founder and co-CEO, Monte Brem, will be transitioning to Executive Chairman as of January first while remaining Chairman of our board of directors, and I will become sole CEO. This transition is the natural next step in a succession plan that has been carefully planned and communicated over the last several years. Nevertheless, it does provide an opportunity to look back and reflect on the successful firm that we've built over time.
Monte clearly laid the foundation for our success with his vision to build a global private markets investment firm and establish a collaborative and entrepreneurial culture. We couldn't be more excited about the opportunity to build off that foundation while continuing to benefit from Monte's vision and mentorship as Executive Chairman. With that, I will turn it over to Mike McCabe.
Thank you, Scott. On behalf of all the StepStone employees and its board of directors, a big thank you to Monte Brem for his vision and leadership as StepStone's founding partner. Congratulations, Scott, as our new CEO. The future could not be brighter. With that said, I am pleased to report we generated $18 billion of gross AUM inflows in the last 12 months, with $2 billion coming from our commingled funds and $16 billion in separately managed accounts. Turning to slide seven. In addition to the growth we generated organically, the consummation of the Greenspring acquisition contributed an additional $23 billion of assets under management and $11 billion of fee-earning AUM.
These figures include interim closing for Greenspring's venture capital secondary fund, which added $1.9 billion of assets for the quarter and exceeds our expectations from when we announced the deal. Our asset growth was strong across structures and asset classes. Within commingled funds, we had an initial close of our private equity co-invest fund north of $500 million. In addition, we had an interim close for the StepStone Tactical Growth Fund III and our private debt funds for the quarter. Subsequent to the end of the quarter, we had our final close for the Tactical Growth Fund III, which finished with over $690 million in commitments, well above the $214 million size of its predecessor fund. We generated strong growth in our separately managed accounts across asset classes.
Momentum is exceptional from international clients, which we anticipate will continue to fuel AUM growth for the considerable future. We continue to enjoy very strong re-up rates for all asset classes, which account for about three-quarters of our gross AUM in managed account additions over the last year. The strong re-up rates are a testament to the incredible stickiness, satisfaction, and loyalty of our current clients. Furthermore, we are successfully expanding these relationships to include mandates across new strategies and asset classes while also developing new relationships for the firm. We continue to make progress in our evergreen product, SPRIM, our private markets fund for accredited investors, including individuals. SPRIM hit the one-year mark on October first.
The fund has achieved a remarkable 59% net return for investors since its inception on October 1st, 2020, and has an AUM of $270 million as of November 1. We are very pleased with the near-term progress from this program and continue to be excited about the long-term yield. Moving to slide eight. We grew fee-earning AUM by over $2 billion in the quarter, excluding the impact of the Greenspring acquisition. We also had a significant jump in our undeployed fee-earning capital, which is up over $4 billion in the quarter to nearly $18 billion. The growth in our dry powder reflects the simultaneous re-up among several existing relationships and includes approximately half a billion dollars from the Greenspring acquisition. This is our highest undeployed balance on record and continues to provide a healthy runway for the future.
Growth in assets is inherently lumpy, so we think it is most productive to look at the trends over a longer-term basis where we have consistently delivered robust growth. Over the last 12 months, we grew fee-earning AUM by 25%, excluding the impact of acquisitions. Over the last three and a half years, we've delivered an organic compounded annual growth rate of 30%. Slide nine shows the evolution of our management and advisory fees, which have more than doubled from $140 million in fiscal 2018 to over $300 million in the last 12 months.
While there is minimal impact from Greenspring this quarter, we have started showing earnings and revenue trends on a per-share basis to normalize the impact of M&A and illustrate the growth realized for shareholders. Over the last three and a half years, we have grown fee revenue per share by a 25% CAGR. Switching to the table on the bottom of the page, the blended fee rate of 51 basis points is relatively flat compared to the last couple of years. If you look at the individual components, you'll notice a decline in the commingled fee rate. This is primarily a function of the $9 million of retroactive fees we earned in our commingled real estate fund a year ago that positively impacted the fiscal 2021 fee rate. Underlying pricing by asset class and fund type remains very stable.
As a reminder, the acquired Greenspring assets are heavily weighted toward commingled funds, which tend to earn a higher fee rate than separately managed accounts. As a result, we anticipate the blended fee rate will rise a few basis points as we benefit from the full period of Greenspring fees. With that, I'd like to turn the call over to Johnny Randel to discuss our financials in more detail.
Thank you, Mike. I'd like to turn your attention to slide 11 to touch on a few of our financial highlights. For the quarter, we generated fee-related earnings of $26.4 million, pre-tax adjusted net income of $51.8 million, adjusted net income of $40.1 million, and ANI per share of $0.40. Included in the quarter was 10 days of contribution from Greenspring, which added $2.3 million management and advisory fees and $1 million of fee-related earnings. Greenspring acquisition also resulted in an additional 1.7 million weighted average adjusted shares. The Greenspring earnings were accretive, but given the short sub-period did not move the needle this quarter on EPS. Our FRE margin for the quarter, 32%, down 500 basis points year-over-year.
As mentioned earlier, we benefited from significant retroactive fees from the year-ago period. Normalizing for these retroactive fees and the impact from Greenspring, FRE margins would have been 29% in the current quarter, which are even with the year-ago period. Gross realized performance fees were $56.1 million for the quarter, reflecting a continued positive market environment driven by strong underlying investment performance and a sustained level of robust realization activity. Slide 24 in the appendix provides quarterly and last 12-month trends of net performance fees and illustrates the material step up in net realizations over the last four quarters. The next two slides display underlying revenue and earnings growth year-over-year and over the longer term. We show the numbers on both an absolute and per share basis.
While there is minimal difference in the growth rates this quarter, the absolute dollars presented in the bars will begin reflecting the benefit of a full period of the Greenspring acquisition next quarter. As we move forward, the per share measure will account for the impact of M&A and represent growth realized for shareholders. I'll start with revenues on slide 12. We've grown revenue per share by 69% in the first half of the fiscal year and by a 32% compounded annual growth rate over the longer term. The revenue growth is driven by a strong trajectory in fee earning assets and exceptional growth in realized performance fees. Shifting to our profitability on slide 13. We have grown fiscal year-to-date accumulated earnings per share by 6%. This comparison includes the impact from unusually large retroactive fees in the same period in the prior year.
Over the last 3.5 years, we've achieved a CAGR of 48% in fee-related earnings per share. Our long-term fee-related earnings growth rate exceeds that of our management and advisory fees, demonstrating the operating leverage in our model. We have grown adjusted net income per share by 138% year to date and by 46% over the longer term, reflecting the positive progression of FRE and strong realized net performance fees. Moving to the balance sheet on slide 14. Gross accrued carry continues to increase, driven by strong underlying investment performance, ending the quarter at over $1.2 billion. This is up 13% from the prior quarter and up 150% over the last 12 months, despite an exceptional level of realizations over the last year.
As a reminder, while realized performance fees hit our income statement in the period they occur, changes in our accrued carry balance reflect our share of the unrealized gains or losses of our client portfolios on a one-quarter lag. On the bottom chart, our own investment portfolio ended the quarter at $90 million, up 8% from the prior quarter and up 66% over the same quarter in the prior year, reflecting both market appreciation and net contribution. Unfunded commitments to these programs are $72 million as of quarter end. We manage a large pool of over $48 billion in performance fee-eligible capital. This capital is widely diversified across approximately 140 programs as of September 30th. Sixty five percent of our unrealized carry was tied to programs with vintages 2016 or earlier, which means that these programs have entered harvesting mode.
Sixty two percent of this unrealized carry is sourced from vehicles with deal-by-deal waterfalls, meaning realized carry will be payable at the time of investment exit. A quick comment on the liability portion of the balance sheet. We used a small amount of debt to fund a portion of the Greenspring acquisition. As of the end of the second fiscal quarter, we had drawn a little over $110 million against our line of credit on which we pay a 2% spread on top of LIBOR. This is a relatively modest amount of leverage, and the line of credit gives us flexibility on top of our significant normal cash flow generation to support growth initiatives, including future GP commitments. This concludes our prepared remarks. I'll now turn it back over to the operator to open the line for any questions.
Thank you. If you would like to register your question please press one followed by four on your telephone. You will hear a prompt to announce your request. If your question has been answered and you would like to withdraw your registration, please press one followed by three. One more three for the first question. Our first question comes from the line of Ken Worthington with J.P. Morgan. Please proceed with your question.
Hi, good evening. Thank you for taking my question. Maybe two. First, on SPRIM, the returns are absolutely outstanding, but I'm really interested in the sort of the continued build-out of distribution in the product. Now that you're above $250 million, what sort of doors are open in terms of new distribution opportunities? What, you know, do you see as the milestone and assets that would drive further access to distribution for that product given, you know, how, you know, strong the returns are? Then what are the products that SPRIM is sort of coming up against? Like, who are the intermediaries sort of stacking that product up against? Anyway, thank you.
Hi, Ken. This is Jason. Thanks for the question. As we've spoken about before, as we reach this size, additional doors here in the U.S. are definitely opening. We're in diligence with a couple of the wires now, so excited about that progress. The RIA community, we're up over 80 approved platforms on SPRIM, as well as a number of IBDs here in the U.S., starting to get more material traction in some of the larger allocators outside the U.S. as well, over the last month or so. We did have a one-time channel open up in Mexico for us with a listed vehicle in Mexico that buoyed this fundraise for this past month.
In terms of the comp set, there are a number of other funds, mostly concentrated around private equity. I think that again, two differentiators that we've called out before. One, this product is accredited investor eligible. Many of the other ones are not. They are focused on the qualified client or qualified purchaser here in the U.S., so a higher standard. Two, our ability to deploy outside of private equity and really deliver an all-private market solution as opposed to a private equity-only solution is a pretty material differentiator relative to the peer set. Most importantly, you know, thank you for noting the performance. That's the clear and away differentiator. You know, congrats go to the wider StepStone team for what they've been able to deliver for this product.
Great. Thank you. The undeployed fee-earning assets under management, $17.8 billion, clearly continues to grow. I think you guys invested around $1.4 billion this quarter. It suggests that you would get through that pipeline in the next 3 years at this current pace of investment. It's clearly a fabulous environment. If we remain in this fabulous environment, does 3 years actually, is that even possible to work through this pipeline or are there products, I'm sorry, structures or contracts that would drive, you know, this pipeline to be sort of, you know, mandatory to be invested over a longer period of time, like 4 years or 5 years?
Hey, Ken, this is Scott. Thanks for the question. I think we've always talked about the pipeline of undeployed fee-earning capital as being deployed really over probably a 3-year to 5-year time period. I think you're right that I think in an environment like the one that we operate in today, it would be likely that that may be more like a 3-year time period. I would not expect it to be any faster than that, less so for structural reasons, more because from a vintage year diversification standpoint, we have continued to be quite focused on making sure that we were properly diversifying across vintage years. I really like the fact that, you know, the flexibility to go out over 5 years means that there's no rush to invest the capital.
We can be patient. We can continue to have the same selective approach that we have employed to date here, even in an environment like the one that we operate in today. Hopefully, the idea that we continue to replenish that undeployed fee-earning capital over time as additional re-ups or new opportunities come about.
Great. Thank you very much.
Our next question comes from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.
Hey, guys. Good evening. Thanks for the question. Congrats, Scott. I was hoping we could start maybe with a question around Greenspring. You know, Scott, you mentioned that your integration continues to unfold really nicely, despite obviously the fact that the deal closed a little bit out of schedule. Can you give us a sense of maybe some recent trends that Greenspring is seeing in their standalone business? Maybe, you know, flows in the September quarter and anything they have in the hopper kinda coming up, from a product perspective. Then combined, as you look at the, you know, the two companies together, what is the main focus here from a distribution perspective? How do you expect to sort of accelerate their standalone growth, which obviously has been pretty strong?
Great. Well, first of all, thanks, Alex. Appreciate that. On Greenspring, a couple of things. Again, you heard us say that we continue to be very encouraged by the performance, even on a standalone basis, between signing and closing. You heard reference to the fundraising progress across the venture capital secondaries fund. In particular, I think we've been encouraged by just the continued interest, not only in venture capital in general, but I think particularly some of the strategies that Greenspring has sort of been active in and has really established a leadership position.
I think when you combine that with the really the combination with StepStone, the enhanced flywheel effect, you know, clearly the fact that the interest in those funds that are in market continued, you know, through the announcement, through the closing of the merger suggests that, you know, investors really understand the combination and the benefits thereof. I think as we think about the distribution channels going forward, look, I think there's a real opportunity there in the sense that you've heard us talk on prior calls about the fact that there's not a tremendous amount of overlap between our LPs today, you know, particularly some of the very large relationships that StepStone's been able to develop, you know, with pension funds, sovereign wealth funds, international investors.
You know, we think this just further expands the toolbox, allowing us to create even more innovative solutions and solve more problems for those clients. I think really tapping into one another's investor base as we move forward here.
Okay. Got it. Thanks. My second question really is around the cash flows and the kind of evolving nature of carried interest that's running through the P&L now. We've seen multiple quarters now where incentive fees, performance fees continue to come in well ahead of expectations. Accrued carry is growing and obviously, you know, given the environment, presumably there will be more to come on that. As you're thinking about uses of cash from here, dividend increase helps. Very nice. But what are your thoughts around either more acquisitions or opportunities to buy minority stakes from the real estate infra or credit team?
Hey, thanks, Alex. Mike. Yeah. I think your question, and thanks for it, is a broad kind of capital management question that I think we can unpack in a couple of different ways. First and foremost, you know, we are highly focused on maintaining, you know, a capital efficient business model, which is supported by a flexible and cost-effective capital structure. At the moment, we're basically looking at a number of priorities. You know, first, as Johnny mentioned, you know, we drew down a little over $110 million from our revolver to help fund the acquisition of Greenspring. You know, even though this represents a modest leverage ratio, our intention is to, you know, pay down the revolver over time. That is a source of cash going forward.
This in turn creates a very flexible capital structure that allows us to be nimble and opportunistic in what appears to be a very healthy M&A environment while managing our working capital needs. I think the third use really is to continue to fund the general partner. We are currently in market, as I mentioned on the call, with the co-investment fund. We'll be coming back to market shortly with some other larger funds, in addition to layering on all of the Greenspring funds. Being sure we have the capital available to fund the GP adequately is a priority. Fourth, as you mentioned, we've doubled our dividend, which reflects a payout ratio largely in line with our peers.
Lastly, you know, we plan to continue to invest in the business for growth, whether it's data, technology, distribution, product development. We feel we've created this optimal flexibility with our revolver, with our capital structure, with our payout ratio. I think you can expect us to do more of the same going forward. From a capital management standpoint, you know, our priority is to maintain a very efficient business model, and a very cost-effective capital structure.
Great. Thank you very much.
Thanks.
As a reminder, to register for a question, press the one four. Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question.
Hey, good afternoon. Thanks for taking the question, and congratulations, Scott, on the expanded role. I just wanna circle back to retail, topic du jour here. I guess what catalyst do you think, or kinda think about on the horizon that could help accelerate growth for the product, just given the strong performance that it's put up? Is it more of a three-year tracker that you need rather than a one-year track record? And maybe you could talk about some of the resources from a sales and distribution team that you're putting to work here and how you're thinking about expanding those sales resources.
Thanks, Mike. You know, from an existing team perspective, the team's about 20 strong, largely focused in the U.S. Over the foreseeable future, we'll see some expansion here in the U.S., but also starting to build out the European footprint a bit more as well, as we look to expand European capital raising for the SPRIM parallel vehicles. In terms of a catalyst, I think, you know, to be honest, I think we've probably crossed the requisite in business for long enough threshold with the 1-year worth of activity. I think the size crossing over the $250 mark and now $275 even, I think
Also, checks the box necessary for most of the platforms out there. As we get through the diligence process with a few more groups, I think you'll start to see the increased rate of raise for this product flow through. I'm not looking for anything that's outside of our control presently, that's really required for the SPRIM product. Of course, you know, this is our first product, but it won't be our last in the channel, and we'll seek to roll out additional solutions based on channel feedback over time.
Great. Just a follow-up question on the undeployed pent-up fee-earning capital, $17 billion or so. That's up about. Looks like about $3 billion, excluding Greenspring here. Can you just talk about some of the biggest contributors to that increase sequentially, and more broadly, talk about some of the initiatives to expand this top of the funnel. I think you mentioned you're starting to travel again. Maybe you could talk about the opportunity to bring new customers in the door.
Sure. Thanks, Mike. This is Scott again. Look, the good news there is, there were really contributions to the undeployed fee-earning capital across all four asset classes, across all three strategies, and really, through a combination of re-ups, expansion of existing client relationships, you know, whether across asset classes or strategies, as well as some new accounts. Just, you know, sort of order of magnitude, some of the larger drivers, and we've never provided an exact, you know, breakdown. I'd say, you know, this quarter, infrastructure and private equity, you know, were particularly strong contributors there. The re-up activity in particular has been quite strong. I think just driven by the continued strong performance and appetite from our clients.
You know, this is a particularly strong re-up quarter for us. In terms of broadening the top of the funnel activity, yes, clearly our business development team has continued to be you know active throughout the COVID period. Yes, now beginning to travel a bit more internationally or even on the domestic front, again, with 21 offices around the world, we feel like we are well positioned, even if travel is only taking place on a domestic basis. I'd say there's quite a bit of activity on the new LP, new client front. Some of that, you know, may not be on the separate account side. I think that is true across our commingled funds, as well.
We are encouraged by some of the new commitments, the new relations we've started to establish, especially when you think about the way we've been able to grow those relationships, whether through re-ups or expansion of the relationship over time. I think with our expanded toolbox, again, now not only across the four asset classes, but with significantly enhanced venture and growth capabilities of late here, I think we have a lot to talk about with our clients.
If I could just on the re-ups that you mentioned, I guess how much scaling are you seeing from those customers that are coming back and are re-upping? Are they scaling in magnitudes of 20%, 30%, 50%? Any help there?
It's hard to generalize. I think we see some clients that look at their separate account allocation as something that's just going to be very steady, and so they re-up at the same size, you know, fairly consistently. Others may be looking to prove out the concept, and once it's proven, may look to double the allocation over time. It's difficult to generalize in terms of what the growth is, you know, separate account over separate account. It's, you know, there's certainly sort of double-digit, you know, growth rate. I think we continue to work on the best way to disclose some of the details here, both about the extent of the re-ups as well as the growth in those accounts over time.
Okay. Thank you.
There are no further questions at this time. I will now turn the call over to Scott Hart. Please go ahead.
Well, great. Well, thanks everyone for dialing in, for your continued interest in StepStone, and for the questions. We look forward to continuing to keep you updated in future quarters. Thank you.
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.