Greetings, and welcome to the StepStone Investor Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr.
Seth DeWise, StepStone's Head of Investor Relations. Thank you. You may begin.
Thank you, and good morning, everyone. Joining me on the call today are Scott Hart, Co Chief Executive Officer Mike McCabe, Head of Strategy Jason Ment, President and Co Chief Operating Officer and Johnny Landel, 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. All data presented is as of 03/31/2021, unless otherwise indicated. 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. Please also review the disclaimers contained in the presentation materials, which can be found in our Investor Relations website. I'd now like to turn the call over to StepStone's Co Chief Executive Officer, Scott Hart.
Good morning, and thank you for joining us on short notice. We are excited to announce today that we have signed an agreement to acquire Greenspring Associates, a company with a talented management team that we have long admired. Greenspring is a dedicated venture capital and growth equity platform that manages assets across strategies covering all stages of the innovation economy lifecycle. We believe our combination will create the clear market leader in venture and growth equity and when combined with the broader StepStone platform strengthens our ability to deliver compelling private market solutions globally with more than $444,000,000,000 of combined AUM and AUA if measured as of 03/31/2021. We anticipate the transaction will close by the end of this calendar year.
Over the next few minutes, we will provide an overview of Greenspring, summarize the terms of the transaction and highlight the strategic and financial merits of the deal. This transaction is consistent with SethStone's proven strategy of bringing on experienced and senior teams, employing a team of teams approach that has allowed us to capture the benefits of empowering dedicated specialized groups, while also taking advantage of being a large global private markets platform that will have over 20 combined offices around the world after the acquisition. The addition of Green Spring and its professionals enable StepStone to scale our venture capital and growth equity capabilities, which will broaden our menu of private equity solutions as we seek to build the highest quality portfolios for our clients. The transaction offers significant strategic benefits to both StepStone and GreenSpring and we anticipate that the acquisition will be meaningfully accretive to adjusted net income per share. Importantly, the full Greenspring team will be joining us and there will be no disruption to the limited partners or investment engine that has been so successful at Greenspring.
Turning to Slide five, we provide an overview of the venture capital and growth equity landscape. Venture capital and growth equity have been among the fastest growing and best performing sectors in all markets. Over the last two decades, we have observed these sectors greatly expand in scale and global reach, becoming increasingly relevant for all investors, both public and private. A dynamic ecosystem of large platform fund managers and smaller specialized managers are providing startup and expansion capital to innovative high growth companies, many of which are achieving unprecedented scale and driving outsized returns for investors. Over the last ten years, global venture capital fundraising has grown by a 15% compounded annual growth rate.
Deal activity has increased at a 20% compounded annual growth rate, while median venture capital IRRs are outpacing broader private equity buyout returns by nearly 500 basis points. Given that favorable backdrop, many investors including StepStone clients and prospects are seeking to increase their exposure to venture, growth and the broader innovation economy. Green Spring presents a unique opportunity for us to strengthen our presence in this area. Turning to Slide six, Green Spring was founded in the year February as a venture capital investment firm and has evolved into one of the largest venture capital and growth equity specialists with approximately $9,000,000,000 of fee earning AUM. Driven largely by the strong appreciation of the underlying investments in the current funds, this translates to $17,000,000,000 of assets under management.
Green Spring serves as a value added lifecycle partner for fund managers and entrepreneurs investing across all stages of venture capital through a combination of primary, secondary and direct investments. We also offer a number of bespoke venture strategies such as impact, diversity and inclusion and geographically focused funds for a varied group of institutions and high net worth individuals. Green Spring has an exceptional growth profile and a strong performance track record. Over the last three years, the team has increased management and advisory fees at a robust 34% compounded annual growth rate and has generated a 21% platform wide net internal rate of returns since inception, well above the public market equivalent of 12%. Moving to Slide seven, StepStone and Greenspring operate with similar philosophies and have a strong alignment of culture and strategic priorities.
Both firms emphasize a client focused solutions oriented approach driven by specialized expertise and attention to client specific needs, all while leveraging superior data and technology to make the best investing decisions possible. Moreover, StepStone and Greenspring share core values of trust, integrity, transparency and respect. As shown on Slide eight, the acquisition will complement our global footprint with the addition of over 125 total team members across offices in Baltimore, Palo Alto, Miami, London and Beijing. The combination will expand our private equity team to over 130 investment professionals who if measured as of 03/31/2021 managed $60,000,000,000 of AUM, dollars 34,000,000,000 of fearing AUM and Advise on $171,000,000,000 of AUA in private equity alone. In aggregate across all asset classes, the transaction would bring us to $104,000,000,000 of AUM and $61,000,000,000 of Fearing AUM as of 03/31/2021.
I'm personally thrilled to welcome Ashton Newhall, Green Springs' Founder and Managing General Partner and Jim Lim, Managing General Partner, who together with the rest of their partners will be joining StepStone as partners on our private equity team. Ashland and Jim have built the best venture dedicated practice within private markets and we are excited to welcome the entire team to StepStone. I will now turn the call over to Mike McCabe, our Head of Strategy to summarize the terms of the acquisition and discuss the strategic and financial merits of the deal.
Thanks, Scott. Turning to Slide nine, StepStone is acquiring full ownership of Greenspring Associates for $725,000,000 in total upfront consideration. The transaction was structured with approximately 75% of the purchase value tied to long term incentives in the form of StepStone equity plus a potential cash earn out. Specifically, the purchase price is comprised of $185,000,000 in cash and $540,000,000 in StepStone equity, an accommodation of StepStone Class A common stock and a new Class C partnership unit, which will be convertible into Class A common stock over time. Depending on the achievement of certain revenue milestones, the Green Spring senior leadership team may also earn an incremental cash payment of up to $75,000,000 payable in 2025.
The acquisition does not include any accrued or future carried interest for the pre acquisition Greenspring funds, but StepStone will be entitled to a portion of the carried interest from funds raised and invested following the close of the transaction. On Slide 10, we display the as adjusted financial impact of the combination showing asset balances, last twelve month revenues, fee related earnings and FRE margins. We expect the transaction will increase the mix of management and advisory fees as a percentage of adjusted revenue and will result in an immediate improvement to our fee related earnings margin. We anticipate that the transaction will be accretive to adjusted net income per share by the high single digits during the twelve months following the deal close and buy more in the future. This accretion estimate conservatively assumes no benefit from future carried interest and assumes no revenue or cost synergies.
However, as I previously mentioned, we will be entitled to earn carry on any new venture funds that begin their investment period after the close of the deal and we anticipate that we will benefit from synergies following integration as the combined firm grows and evolves. Perhaps even more important than the financial accretion is the strategic merit of the transaction summarized on Slide 11. This combination creates a global leader in private market solutions, including a strong and scaled presence in venture capital and growth equity with over $100,000,000,000 of assets under management and $340,000,000,000 in assets under advisement. It provides the Green Spring team with the resources, reach and scale to deepen relationships with fund managers and further accelerate growth, including an expanded data and technology advantage, greater geographic reach and global marketing support. Meanwhile, StepStone's robust data science and engineering team, business development team and shared corporate functions will afford the Greenspring team more time and attention to allocate toward investing.
We believe the limited overlap in the combined LP relationships will provide incremental opportunities to grow our footprint over time. To conclude, we have a long history of successfully identifying and integrating talented teams of professionals with shared core values and common strategic vision to be the trusted partner of choice for private market solutions globally. We are extremely excited about working to close this transaction and welcoming our new colleagues to the team. With that, I would like to turn the call over to the operator for any questions. Thank you.
Thank you. Our first question comes from the line of Ken Worthington with JPMorgan. Please proceed with your question.
Hi, good morning. Just a couple of questions. Maybe first, does Green Spring operate largely funds or separate accounts? And assuming that it's that there's a mix of funds and separate accounts, can you talk about where Green Spring funds are in their lifecycle? And do they manage like maybe one large master fund?
Is it a lot smaller funds? And then I guess wrapping that up, do they make money on committed or invested capital?
Sure. Thanks Ken for the questions. So yes, to your first question about do they operate funds versus separate accounts, their business has been more heavily weighted towards commingled funds to date. They do have a number of bespoke relationships with larger clients that are in the form of separate accounts that then feed into some of the commingled funds. But it is more heavily weighted towards commingled funds than our business today.
It is not a single flagship fund, it is a series of funds, the largest of which consists of a global multi strategy venture fund, a secondary fund, a direct investment fund and then a number of bespoke strategies that are either geographically targeted or focused on things such as diversity impact or micro investments. In terms of where they're at, I'll just focus on some of the larger funds for now. That flagship multi strategy fund that I mentioned had its final close earlier in 2021. So that's a relatively recent close. The secondary fund is one that they're in market with today and their direct fund had a closing in 2020.
And so it's probably the larger fund is probably next up from a fundraising standpoint.
Okay, excellent. And then committed versus invested capital, how are they generating the management fees?
Yes, sorry. So it's a mix of both. Again, similar to Stepstones fee structure, where the commingled funds tend to be more heavily weighted towards fees on committed capital. That is the case here as well, but there are some vehicles that charge on invested.
Okay. And then there's an earn out in the deal structure. Can you talk about the targets that are going to be needed to be achieved to kind of reach that earnout? I assume it's not an all or nothing earnout. So help us think more about the pathway to achieving the full earnout.
Sure. Mike McCabe, do you want to take that one?
Yes. So Ken, as you mentioned, the earnout will go through year 2025. And from a disclosure standpoint, I think we're still working on the level of detail. And so if you bear with us, we'll get back to you on some of that detail.
Okay, fair enough. Thank you very much.
You're welcome. Thank you.
Thank you. Our next question comes from the line of Adam Beatty with UBS. Please proceed with your question.
Hi, good morning. Thank you for taking the question. Just wanted to ask about the interaction within the investment process between sort of legacy StepStone and Greenspring to the extent that you have like a solution, a StepStone solutions LP who wants VC or growth equity exposure. How does the allocation or potential allocation to Greenspring versus potentially third party funds or other investments, how will that work and what's the interaction you foresee?
Yes, Adam, thanks for the question. So, look, it's a good one. I'll start with the integration of the teams first. And I think we've had a unique perspective on the Green Spring team having a long history with them either going head to head with competitors or collaborating with that team and have had the view that it's one of the strongest in the business. Now clearly, we have strong existing capabilities in the venture and growth space today.
And I think as we have worked through this process, what we have concluded is that it's actually an incredibly complementary fit in terms of where we have historically focused our time and efforts and where the Greenspring team has focused their time and efforts, where for example, our efforts have been focused more on later stage profitable control oriented growth investments. And so there's less overlap than you might expect. And if anything, we think this is a highly complementary fit between the two teams and therefore what we're able to offer clients as well. There will clearly be a small amount of overlap and so have worked closely with the Greenspring team on how to manage allocations on a go forward basis. But I think overall, all involved here are confident that the combination will allow us to provide either even greater solutions to both Greenspring LPs and our clients in the form of incremental deal flow and incremental due diligence insights as a result of the presence in the market and the data that we will have access to.
Excellent. Thanks Scott for that. Also wanted to ask about you provide the three year CAGR of fees for Greenspring and below there's a chart of committed capital that with a pretty steep curve and then leveling off a little bit. Just wondering if you could add a little more color as to the recent trajectory. I don't know if the leveling off you just closed the big multi strat fund, is that related to that or maybe the pandemic or what have you, but just how you're seeing the trajectory of fee growth ahead for Greenspring?
Thanks.
Yes. I mean, Johnny, Randall, do you want to jump in with some comments there and I can maybe add to that as well?
Sure. I think as we kind of looked at the opportunity, we saw similar growth potential and as we kind of thought about their ability to grow fee earning assets, our ability to grow fee earning assets and the kind of power of the combined platform, I think we felt very strongly this is an opportunity to continue to accelerate growth across both platforms. Again, we're working through what's the best way to disclose some of these attributes and talk about them, but I think the attractiveness of the combined platform and the growth trends we've seen for their business in the last few years, the growth trends for ours as a compelling opportunity.
Got it. But I think just in the yes, I think in looking at sort of leveling off of committed capital, probably more driven by the pandemic. But I think as we look at growth whether on a one year or a three year basis has continued to be quite strong and the momentum in the business quite strong. So we kind of think of it as growing at similar types of rates to what we've seen across the broader step stone business.
Got it. Thank you,
Scott. Thank you. Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question.
Hey, good morning guys. Thanks for taking the question. Just it seems like their business in some respects maybe a little bit different than yours in that they do maybe a bit more direct investing, have direct investing strategies and funds, although you guys have your co investment strategies, but maybe putting that aside. I guess just how do you think about the evolution of StepStone moving closer to more direct investing strategies over time? And how much would you say of the Green Spring AUM or fee paying AUM is allocated to more direct investing versus secondaries and primaries and such?
Hey, Mike, it's Scott. Thanks for the question. I would actually highlight there are a number of similarities between their direct and our co invest business, a few differences that I'll touch on. But I wouldn't read anything into any plans that StepStone or the combined StepStone and GreenSpring have to move into the direct investment business. When we think about the similarities, I think both we and GreenSpring recognize that our competitive advantage from both a sourcing and a due diligence standpoint is really driven by our deep network of GP relationships and the tremendous amount of access to data and information.
And so as a result, we're both heavily focused on partnering with as opposed to competing with GPs. I think the main difference there is that given the multiple rounds of financing that you often have in venture capital, Greenspring, unlike Green Spring is less likely to invest Peripat Stew alongside a single co investment partner the way we often do at Stepstone, but more likely to lead or price a financing round. So I'd say that is price specific to the venture strategy and not unlike what we had probably seen in our venture business over time.
And then do you have any data you're able to share with us just around the composition of the AUM between direct versus secondaries and such primaries?
Sorry, Johnny, do you have that specific breakout handy?
I do not, Scott. So we'll have to come back on that.
Yes, we'll have to come
back on that, Mike.
Okay. And just maybe a follow-up question here. Maybe you could just give us a little bit of color around how you guys kind of came about their business. You guys diligence a lot of different GPs and other managers in your day to day. I guess just what stood out to you looking across them versus other VC and growth oriented managers?
How did they kind of stack up in your view? What metrics did you look at to assess that? And what in your view is their secret sauce at the end of the day?
So I'll start and I might ask Mike McCabe to add on as well. But part of it is the similarity in terms of how we think about the business. And I think one of the things that we found very early in our conversations with Greenspoon is that we very much speak the same language. We have both pursued this integrated approach to primaries, secondaries and co investments are direct. Both believe strongly that that integrated approach leads to this sort of network effect, leads to the flywheel effect that we've often talked to you about, whereby the more active we are in the market, the more GP relations we have, the more deal flow and information that we have access to and that helps lead to the better investment decisions.
And again, I think that is a philosophy that we are both heavily focused on and think that coming together creates not only the clear market leader in the venture and growth space, but also more broadly in the private market solution space. I mean, some of the metrics that we looked at, they generated 21% net IRR since inception, so very strong returns. I think when you look at the activity levels across those different strategies that I mentioned, so you see a nice balance between the fund investing, secondaries and direct and have made very nice progress on some of these bespoke strategies that are frankly areas that we are focusing more heavily on things like impact diversity, etcetera, that I mentioned earlier. The final point I would make is just to go back to just sort of that unique perspective we had having competed with, but also collaborated with the firm in the past is that we have diligence certain of the Green Spring funds in the past and so had an inside look and understood the quality of this team, which we think is world class as well as the performance access to deal flow and ultimate investment decision making that they made.
But I don't know, Mike, if there's anything you would add on as it relates to the relationship and how this came about?
Thanks, Scott. And thanks for the question, Mike. Maybe I'll spend a minute on adding a few more words about how we view their secret sauce. And I think it has a lot to do with our own secret sauce, which is we're a very client and LP centric firm and we're also a very GP centric. And I think that combination of putting GPs and LPs at the forefront of who we are and how we work is why we speak the same language.
In terms of how the deal came about, as we've talked about pre IPO and during our analyst calls and subsequent follow ups, we're always sort of looking for opportunistic ways to enhance, expand or accelerate our growth. But it's a very opportunistic approach toward M and A. But we've known the Green Spring team for a very long time. Our senior leadership and their senior leadership have known each other and our investment teams have known each other. And really this came about through more of a proprietary conversation than anything else.
And then after comparing notes, it was a fairly quick, this makes a lot of sense. We see things in very similar way. We work in a very similar way and we have a very similar vision. So it became a very natural evolution once what was a pretty informal conversation earlier this year started led to a pretty quick and straightforward agreement here. Great.
Thanks so much for the added color. Appreciate it. Thank you.
Thank you. Our next question comes from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.
Hey, good morning guys. Thanks for taking the question as well. Curious how you're thinking about integrating this business into StepStone relative to other sort of subs, whether it's credit infrastructure real estate, where StepStone doesn't own 100% of the economics versus for this deal. It sounds like you will have 100% of the FRE at least. So what does it mean from the sort of integration perspective, alignment of interest perspective for the new team coming in versus some of the other legacy subs?
Hey, Alex, it's Scott. Thanks for the question. It's a good one. Look, I think we have talked pretty consistently about the fact that with the infrastructure real estate and private debt businesses, the idea over time is that we would look to own more than the roughly 50% stake in those businesses that we own today. As those businesses continue to grow and continue to mature and that would be done in a way that would result in those teams owning more essentially step equity.
But Greenspring as a twenty year old business, I think has clearly reached that point of maturity. And for that reason, combined with the fact that it will be more integrated within the private equity business and our existing venture and growth business, I think that this structure clearly made the most sense. We will I'll talk about the investment side of things. We will look to integrate our existing venture and growth team with theirs, have plans for a joint, for example, investment committee evaluating venture and growth opportunities that we've made up of both Green Spring and Step Stone professionals on a go forward basis. But I think the point you made about incentivizing the team is an important one as well.
And here you heard in Mike's remarks that there is a significant equity component to the purchase price here. You also have the potential for the earn out, which we think will continue to help motivate and drive the team. And then with some of the legacy carry left behind, I think that the team continues to be incentivized to drive the best results for their existing clients and NLP. And so we think clearly Accomplish is what we would look to accomplish in terms of motivating and incentivizing the team on a go forward basis here.
Great. Thanks. And just a quick numbers question. So clearly the FRE margin is a little bit higher here than StepStone overall. I think you alluded to maybe some cost synergies, not sure how material those could be, but maybe just a refresher on how you're thinking about the FRE margins, pro form a for this transaction evolving over the next couple of years for StepStone?
Yes. Mike, do you want to take that?
Thanks, Alex. So we're coming into the transaction, as you know, around a 31% FRE margin at the March '31 of this year. Green Spring is coming in at 40%. So on a blended basis, our starting point, if you will, is call it 33% notionally combined FRE margin. Again, we feel there'll be scale benefits as our platforms grow together and we would hope to improve upon that in the future.
Great. Thanks very much.
You're welcome. Thanks.
Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to Mr. Hart for any final comments.
Well, great. I would just thank everyone again for joining the call, particularly on short notice. We hope that you sense our level of excitement about the opportunity here and look forward to sharing information as we're able to do so on a go forward basis. Thank you.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.