All right, we're going to go ahead and get started here. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. Note that taking photographs and use of recording devices is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. All right, great. With that out of the way, good afternoon, everyone. Thanks for staying with us here on day one of Morgan Stanley's financials conference. I'm Mike Cyprys, equity analyst covering brokers, asset managers, and exchanges for Morgan Stanley Research. Welcome to our fireside chat with StepStone Group. We're excited to have with us here today Scott Hart, CEO of StepStone, and Mike McCabe on the far end there, who's Head of Strategy.
StepStone is a global private markets firm providing customized investment and advisory solutions, overseeing nearly half a trillion of private market allocations, including around $190 billion of assets under management. Scott, Mike, thank you guys for joining us here.
Thanks for having us.
Making the trip out here to New York. Why don't we start with the business model, solution provider that you guys operate? As a solution provider, you're a little bit different from the Blackstones and the KKRs of the world or the GPs that those guys are known as. You guys allocate capital on behalf of your clients to funds that are managed by the GPs. Increasingly, you are also managing your own direct strategies alongside the GPs. Just curious how you think about the addressable market for solution providers like yourselves relative to the market opportunity for the GPs, how you might size that, and sort of what's the profile of the clients that go to you guys versus may go to the GPs on it directly.
Yeah. Like I said, thanks for having us, Mike. Great to be here as always. Look, as a solutions provider, you're right. The three main strategies that we pursue are investing into other funds, which we call our primary fund business. We invest directly into companies alongside of those managers through our co-investment business, and we will buy out secondary interests through our secondaries business. Those are the three main investment strategies. We pursue those strategies across four asset classes: private equity, venture capital, real estate, infrastructure, and private credit. I think importantly, are both willing and able to partner with our clients in whatever way works best for them, whether as an advisor, a separate account manager, or a commingled fund manager. Look, always a little bit tough to size the market precisely.
Obviously, the private markets overall have grown tremendously since we were founded in 2007. It's gone from a roughly $2 trillion AUM business to over a $15 trillion AUM business today. I think what's been interesting for us is the definition of what a solutions provider might look like has also expanded during that time. At the start, it was really about building customized portfolios that were specifically designed to meet the needs of very large asset owners, either through our advisory or our separate account business. I think over time, we came to realize that for a slightly smaller category of investors, a commingled fund might be a perfectly acceptable and attractive solution for them to get access to some of our most specialized strategies, namely around co-investments and secondaries.
Obviously, fast forward the clock to the last few years, and although we can't build portfolios that are specifically designed for the individual investor, we have been able to design entire vehicles that were designed specifically for the private wealth space to really alleviate some of the pain and the challenges of investing in the private markets for the individual investor. I think what we define as the solution space has grown pretty significantly over time, and we've been a beneficiary of that. Maybe just to touch on the last part of your question, the profile of the investor, the reality is it's tough to sum up because we want to work with everyone from the largest sovereign wealth funds and pension funds in the world to the individual investor and everything in between.
One of the key observations we made at the time of our founding was that no two investors or investor types were exactly alike, and that's really what has led to this solutions-oriented approach that we have delivered on over time.
Great. Maybe turning over to fundraising now. You just kept off an extremely strong fiscal 2025, $30 billion inflows, $20 billion from separate accounts, about $10 billion on the commingled fund side. Let's start off with what drove that strength that we saw, particularly around the separate account side, and what does the fundraising landscape look like here in fiscal 2026?
Great. Thanks, Mike. First, thanks for acknowledging what was a banner year for us. This was StepStone's most successful fundraising year since we started the company in 2007. The $20 billion that came from managed account flows could be unpacked a little bit between a lot of success that we highlighted two years ago at our investor day, where there are certain growth drivers that are embedded in the business that do not really require anything new or exogenous to happen. That boiled down to existing relationships that we have installed around the world, expanding or re-upping the relationships with us, or creating new relationships in the managed account world. The drivers behind that success really could be categorized into three areas.
The first is, to Scott's point earlier, our ability to customize a solution to generate the kind of exposure, risk-adjusted returns, and liquidity profile that clients are looking for, I think is pretty unique to StepStone's technical, cultural, and commercial approach. I think the second bucket would be the fact that more than 60% of our business comes from outside of the U.S. The U.S. is a very strong market, but it's fairly mature. To have more than half of our business, 60% plus, coming from regions of the world that are either new to the asset class or early toward reaching some sort of strategic asset allocation target for private markets is in an earlier stage of maturation. StepStone putting a global footprint out there in the market with 28 offices in 17 countries allows us to take advantage of that.
I think the third driver behind the managed account, $20 billion number, also bodes to the fact that these managed accounts are not small investors. These are some of the largest institutional investors in the world, and we enjoyed the benefit of the simultaneous re-up in 2025 of some very large multi-billion dollar managed accounts. Maybe pivoting for a minute to the commingled side, you're right, Mike, we had a $10 billion year. That was the largest commingled fundraising since StepStone's inception as well. I think that the commingled fund success that we enjoyed comes from a couple of things. First, we had never raised the commingled fund prior to this past year north of $3 billion.
In 2025, we were able to close on more than $3 billion across three different funds, primarily in the secondary space, whether it's our real estate fund, which closed on $3.3 billion, whether it was our private equity secondaries fund, which closed on $3.8 billion, or our venture capital secondaries fund, which closed on $3.3 billion. A lot of success across our commingled fund existing funds. We also launched two new funds. In infrastructure, we launched our debut co-investment fund for infra, and we have also launched our secondaries fund in infra. Last but not least, I'd be remiss without saying private wealth, which was $3.4 billion in March of last year, exceeded $8 billion in March of this year. A lot of success that went into the $10 billion number goes to existing commingled funds, new commingled funds, and our wealth management.
Great. We'll come back to private wealth in a moment. Just staying with sort of the, you mentioned sort of new customers, existing, just how do you see the mix of that today between new and existing customers? How's that evolved over time? When you're looking at sort of the existing customer side, what are you seeing from a gross and net retention?
Sure. One of the KPIs we track internally as an organization, but we also talk openly with everyone in the investor community, is how success is defined by the re-up rate by our clients, our install base. We've been enjoying a 90% re-up rate of all of our managed accounts. Not only are we enjoying a re-up rate of 90%, when a client does re-up, on average, they expand or they increase the scale of that re-up by, on average, 30%. You could apply a same-store sales growth equivalent to what StepStone's doing in managed accounts to be north of 100%.
I think the statistic that we are really encouraged to report, and we talk about internally as well, is when we look at the amount of new managed accounts versus existing managed accounts, so the new business has been a number that we reported in our prepared remarks this past earnings call, we were really pleased to say that 40% or $8.4 billion of the $20 billion of managed account inflows came from the expansion of something that already existed or a completely new relationship. Why that 40% number or that $8.4 billion number is so important is because that becomes the pipeline for future re-ups in addition to the already installed existing base that is re-upping at a 90% rate. It is that 60/40 number that we are really proud to report and feel pretty good about.
A lot has to do with our performance, our investment in business development, and I think our culture just being a trusted partner to our clients.
Why don't we shift and talk about the announcement this morning? That is your proposed partnership with FTSE Russell to develop private asset indices, data, and analytics products. Talk about your vision here, the strategy you're employing. Is it simply to launch reference benchmarks, or should we expect to see investable products like index funds, ETFs, replication indexing?
Thanks, Mike. We were very excited to announce this morning with the London Stock Exchange and FTSE Russell a framework that before the end of this year, StepStone and FTSE Russell will be launching a number of partnership products. We'll certainly lead with quarterly benchmark and reference indices, but I think what will be unique and different will be a daily indice that will provide to the market with the vision of really StepStone has been in the solutions business from the beginning. We listen to what our clients are asking for as a cultural point, and we found that FTSE Russell has the exact same culture. Their public clients, our private market clients have been saying to us, "How do we measure the total portfolio?" Some of the portfolio is illiquid. Some of the portfolio is liquid.
The liquid-illiquid dilemma of how to measure the performance of a total portfolio has come into focus more frequently. The combination of FTSE Russell and StepStone's partnership, we believe, will solve that total portfolio question about benchmarking the performance of liquid and illiquid securities together in one portfolio. We are certainly going to lead with benchmarking solutions, indexing solutions. You can imagine a cohort of indices being launched by StepStone and FTSE Russell, but certainly medium to longer term, is there something investable that follows that? I think this is very much a walk before you run strategy, but it is certainly reasonable to expect some sort of index funds would follow the adoption of the FTSE Russell StepStone series of indices.
How would that work as you think about ultimately putting that in practice? Would they be putting it into a fund that you would manage that would then allocate it, or would you be using derivatives? How do you think about the different ways of structuring something like that?
I think there'll be a number of asset managers that are going to try to solve that problem, not just StepStone, but it's why I said this is a walk before you run kind of an approach. I think that the intent here is to try to figure that out and develop that technology and that capability, which is why we're leading with data, analytics, benchmarking indices first, and then we'll solve the investability challenge, I think, a little bit further down the road.
You mentioned a daily index too, but if I recall the way you guys report private market returns are on a quarterly lag. Is there opportunities for something to be different there over time?
Exactly right, Mike. The quarterly lagged benchmarks are already in the market, including StepStone's, one of the benchmarking services out there. What's going to be unique and differentiated about this will be a daily index, a daily mark for private markets investments. What's very exciting about this is StepStone has already kind of led the way in that direction by virtue of our daily valuation engine, which we created to basically tickerize our evergreen vehicles, such as S-Prime, Strux, CredEx, who have these daily tickers that come from a daily valuation engine. Now, taking the FTSE Russell and the Refinitiv work group, workstation technology, analytics, and data and calculation methods will just be sort of an enhancement to what StepStone's doing on the daily valuation engine to come up with this daily index for the private markets. We're already doing it.
It will just be enriched and enhanced with this partnership.
Great. Why don't we shift and talk about the macro environment? It's been a little volatile this year with trade policy, interest rates, economic growth weighing on public market volatility. Talk about the implications to your business model as a solution provider and how that may or may not contrast with sort of the implications for the GPs themselves. Is there a difference as you think about the impact there? It seems the results this past quarter were quite differentiated from what we saw from the GPs, at least.
Yeah. I mean, I do not want to suggest that we are not impacted by what is going on in the macro. I mean, even some of the success that Mike talked about on the fundraising side of things took some time, right? Certain of those commingled funds, as you will recall, took close to two years to raise. We have not seen an across-the-board improvement in the fundraising environment. I think a lot of that is credit to our team and the supportive client base that we have today here at StepStone. I think the other benefit that we have clearly been able to capitalize on is just the diversification of our business. You think about the four different asset classes, three different strategies, the geographic diversification. Fortunately for us, there is always an asset class or strategy that is in high demand.
Clearly, secondaries has been one of those of late, as has the private wealth business. Geographically, with about two-thirds of our business coming from clients outside of the U.S., we've been fortunate to be able to tap into growing allocations in certain parts of the world. I do not want to suggest we're not impacted by the macro environment. I think a lot of the ways that we are impacted would be similar as you think about the traditional GPs. We tend to break it down into what does this mean for fundraising, which I just talked about. What does it mean for the impact on the existing portfolios? There we benefit from extreme diversification. What does it mean for new investment activity and realization activity? That is where I think we're going to see a bit of a pause.
We talked during our last quarterly earnings call about the fact that we actually had record performance-related earnings in the most recent quarter. That was really as some of the transaction activity that was announced in the calendar fourth quarter and calendar first quarter flowed through the business as those transactions closed. I think given the uncertainty that exists in the market today, I would expect some slowdown as we wait to see buyer and seller expectations come back into line. We've probably been encouraged by some of what we've seen in our own pipelines, whether in the private equity co-investment business where we do still see activity taking place, but certainly expect that's one area we see a bit of a slowdown.
We're going on four years now of limited distributions back to LP clients, as you're alluding to. I guess from your seat, what are you hearing from the institutional asset owners? How are they navigating? Just more broadly, how mature or saturated are private market allocations today?
Yeah. Yeah. Look, that's been a topic we've spent a lot of time on. We've been fortunate to be on the road, traveling, sitting with our clients over the last several months. I mean, let me start with what we're not hearing. What we're not hearing is any of those clients really talking about decreasing their target allocations to the asset class. If anything, the target allocations to the private markets are stable, if not growing. You do have a certain cohort of investors that might be overallocated relative to their target, part of that driven by the lack of liquidity that you mentioned earlier, part of it driven by the very active investment pace in 2020 and 2021.
For some of those groups, the way they may be navigating is to tap the secondaries market, to think about whether there are ways to opportunistically look to clean up their portfolio. Obviously, there have been press about some investors that may be liquidity constrained or coming under other pressure that are forced to evaluate the secondaries opportunity. That is creating opportunities for those that have access to capital today and the ability to deploy. That is really where a lot of the conversations we are having are focused. Where are the opportunities that are being created in today's market? Like we said, secondaries have been a big beneficiary in that sense.
For the part of the community that's a bit overallocated, is that the more U.S. institutional pension community is one that comes up in conversation?
Tends to be. Tends to be those that have more mature portfolios that were already at or around their target allocations, and the slowdown in liquidity has driven them above their allocations. Whereas those that were just getting started or that were really looking to ramp up over the coming years to approach those target allocations have more flexibility in terms of what they're doing today.
I guess where is some of the greatest opportunity on the institutional side? What are the types of channels, geographies within the institutional community where you see the greatest scope for allocations to go higher? Is it more offshore, international? Is it more sovereign or pension? Which asset classes do you see the greatest demand?
Yeah. So look, for us, a lot of our time is being spent internationally, although I would tell you in the last 12 months, we've made a lot of progress in building out our U.S. business development team, which is leading to a number of conversations here in the States as well. Internationally, I think you'd be surprised just sitting here in the U.S. to hear that there are still new pools of capital coming online that are just starting to allocate to the private markets. Many of these tend to be concentrated in the Middle East, in parts of Asia, etc. Certainly from an asset class standpoint, when you look at some of the relatively newer asset classes like private credit and infrastructure, there's probably more room to run there than in more traditional strategies like private equity and venture.
In fact, from some of our recent trips, many of the asset owners we were talking to were just now carving out a separate allocation for private credit, whereas historically it might have been covered within their private equity bucket or within a public fixed income team. Those are really driving some of the opportunities. I would categorize some of those international opportunities, yes, sovereign wealth funds, but also certain pension funds where you may see the contributions coming from employees in certain countries increasing over time, which is expected to drive a doubling, if not tripling, of the size of certain of these international pension funds. Certain of these groups are large allocators to private markets and plan to continue to be for the foreseeable future here.
Why don't we shift and talk about secondaries? Getting a lot of attention these days in the press and across the industry. An increasingly attractive backdrop, it would seem, for that part of the industry, just given we're going on a number of years now to the earlier points with limited distributions and exit activity. I guess, how would you characterize deal activity right now? How do you see this playing out just given the continued pressure on LPs? Do we continue to see a surge in activity? How big could this get in the marketplace? What sort of discounts are you seeing?
Yeah, sure. Thanks, Mike. No question, it's been a tough liquidity environment for some time for LPs. And so really all exit options have to be on the table for the assets that are currently in the ground. I'll get to some numbers there in a minute, but whether it's IPOs or M&A or sponsored transactions, I think the reality is the secondary market is playing an increasingly important role as a source of liquidity for both LPs as well as GPs. What that meant in 2024 was a total secondary volume of close to $160 billion. Of that $160 billion, roughly 80 of that came from GP-led secondary transactions, otherwise called continuation vehicles. That number five years ago, in total, the market was $50 billion-$75 billion. We've seen the secondary market more than double in just the last five to six years.
I think what we oftentimes recite being where we sit in the ecosystem of the private markets is if you go back to when StepStone was founded in 2007, the amount of dry powder sitting in private equity alone was roughly $1 trillion. The amount of net asset value in the ground was roughly $1 trillion. Fast forward to 2024, the dry powder in private equity alone is $2.5 trillion, but the net asset value of private equity investments in the ground is close to $8.5 trillion. If you look at a $160 billion transaction volume in 2024 against the backdrop of $8.5 trillion of assets that are effectively up for sale that are somewhere between three to six years old in vintage, we do think that the supply and demand imbalance really bodes well for the buyer and the buyer's market.
Now, what's exciting about StepStone is over the last year, we've formed close to $15 billion of dry powder across all the asset classes, not just private equity. Private equity, real estate, we're in market with our infrastructure secondaries fund and private credit. Having a multi-asset class approach for liquidity across the private market, just private equity, makes that supply and demand imbalance even greater for StepStone.
What sort of discounts are you seeing? I know there was a recent large trade in the press. I think quoted around a 15% discount. I think ultimately it went for high singles, I think is where it had traded as a big one multi-billion transaction. Just curious where you guys are seeing that relative to where discounts have been over the last 12 months.
Certainly as we came into the last quarter of 2024 and the first quarter of this year, bid-ask spreads came in, pricing got a little tighter and sort of low to mid-single digits seemed to be where the clearing price was. Then there was Liberation Day and a little bit of volatility under the market. That gapped out a little bit to maybe the mid-teens, but we think that that is resolving itself. For normal way private equity buyout, low to maybe single-digit to mid-single-digit discounts seem to be where the clearing price is right now. Venture capital is still in the mid-teens to 20s, depending on the quality of the asset. I would say low single digits for buyout, teens to 20s for venture capital.
We're back to low to mid-singles on private equity.
All at 93, 94, 95 seems to be the clearing price.
Okay. Great. Why don't we turn to private wealth? That area gets a lot of attention across the private markets. Private wealth for you guys has more than doubled to $8 billion of assets on the platform. Tremendous success in a short period of time. Talk about how the flows have trended here through April, May volatility. What's led to what arguably I think has been a bit more durability than people have feared?
Sorry, Mike, I got distracted there for a second. What's been driving the durability?
Yeah, on the retail side and the success there that you guys have seen.
Yeah.
Probably in April and May, right, relative to the volatility in the market.
Sure, sure. We had a great quarter at $1.2 billion of flows from our wealth management channels across 500 partners. For April and May, certainly April, we were all a little bit wondering what Liberation Day may do for us and how that may affect the retail investor or the individual investor. The reality is it did not have that big of an impact. Pleased to sit here today in June to say April and May were on average both $400 million months. The $1.2 billion result that we had last quarter certainly feels to be directionally where we're heading for this quarter as well based on success in April and May.
We think a lot of the success has to do, I mean, as Scott has said, returns are table stakes, but we have been able to sand off the rough edges within the wealth channel by having a lot of our funds with a ticker. These are 1099s. There are no drawdown or capital call structures, so it is very capital efficient. That is what we would consider to be service alpha in addition to the performance alpha that these funds are creating.
Why don't we talk about the product suite? You guys have built out a number of products already for the private wealth channel. How do you see the suite evolving from here? How do clients approach which one to buy? Do they just buy them all? What are you seeing in terms of the uptake from clients as they are buying one or all of them?
Yeah. Look, I mean, the product suite has evolved pretty significantly even over the last five years. You think back to the time of our IPO, we were just getting ready to launch our first fund, S-Prime, which is an all private markets product. Today, in addition to that, we've got Spring, which is a venture capital and growth equity-oriented product, Strux focused on infrastructure, and CredEx focused on private credit. I think, I mean, it's worth rewinding the clock just very quickly to think about the approach that we took to developing that product suite. Because much like our institutional business, we took a solutions-oriented, listen-first approach. What we heard back loud and clear was that what the channel needed were products that were available down to the accredited investor, if not lower level, really the widest part of the wealth pyramid.
As we thought about that customer, realized that that individual might be making a single commitment to the private market. Having a single ticket solution like S-Prime, which we really think about as sort of a model portfolio for the private markets, was the starting point. It was a product we thought we were uniquely positioned to offer given our multi-asset class solutions-oriented approach and was the starting point for us. Post combination with Greenspring, there was an opportunity to create something in the market that did not exist and today is still a very differentiated product. That is Spring. That has been a very successful product for us over the last couple of years here. One that could not have existed with standalone Greenspring without our distribution capabilities, would not have existed standalone StepStone without the venture capital investment capabilities.
You put the two together and it's been a great success story and similar for both Strux and CredEx. To your question around how do the clients think about it, look, we've been encouraged by the trends that we have seen from the different platforms and partners that we work with. That number has grown from roughly 300 partners a year ago to 500 today. The statistic we have typically quoted was that 40% of those partners are now allocating to more than one product. If you actually look at just the groups that we've been working with for over a year, those 300 different platforms, it's actually over 50% of them that are allocating to more than one product.
I think as the name brand recognition, as the strength of the StepStone platform, as the consistency of the approach has gotten out there and resonated in the market, is really driving that uptick in adoption, similar to what we've seen when we look at the expansion of relationships across our institutional clients.
When you think about the distribution build-out, you went from 300 to 500. I guess as you look out over the next couple of years, how are you thinking about the further build-out? I mean, that's already a lot of platforms, but are there more to get onboarded to? Where are they? How do you think about the build-out from here?
Yeah, no, you're right. We were pleased to add 200 unique platforms in the past year, but there are thousands out there to get on. We'll continue to make moves to grow the number of platforms we're on over the next year. I think what we're excited to see is our international operations starting to expand. We have Luxembourg vehicles for our evergreen products based in Europe, around the world, Australia, Asia, Latin America. We're expecting to see hopefully a pretty strong ramp over the next couple of years as far as our international operations are concerned for our evergreen vehicles.
Great. We are going to open it up for audience questions in just a moment, so get your questions ready. The other topic that comes up when we think about the private wealth opportunity is around public-private partnerships. We have seen some others announce some partnerships. Just curious how you guys are thinking about that. Is that something of interest, and how might you approach something like that?
Yeah, look, it's certainly something of interest. I mean, you heard Mike make some comments earlier when talking about the data and benchmarking and indexing opportunity around the focus on the total portfolio. Really the blending or blurring of lines that we're seeing between private markets and public markets and the resulting demand for similar levels of liquidity, transparency, benchmarking, etc. Look, part of that has driven first to these evergreen vehicles that we have created, being able to offer these semi-liquid products over time. I think in our mind, when we think about the evolution of where that could go from here, it has really started to pave the way for model portfolios and the inclusion and allocation to private markets within a model.
And Perhaps not surprising to your point, that sort of the next step from there is not just including privates in a model portfolio, but combining publics and privates in a single vehicle. Think that clearly as some of the public market-oriented firms look to increase their exposure to privates, as privates look to move further down the wealth curve, that's part of what is driving that trend today. Clearly, we as a purely private markets-focused firm would need to do something in partnership if we were to move down that path. We're open-minded and having conversations about that. I mean, I think as some others in the market have acknowledged, it's still a bit of an experiment at this stage.
We're watching closely to see how some of the existing products that have been announced evolve and looking for the right opportunity for us here at StepStone. Generally think similar to some of our comments about the evergreen funds, and this would extend to other potential growth areas as well, that our multi-manager approach and that ability to get instant diversification not only across asset class or strategy, but manager as well is one of the things that differentiates StepStone.
Great. We have about two minutes left. Any questions in the room? If not, maybe continuing on that same thread around public-private partnerships, moving down market, one of the other opportunities comes up is around the retirement channel, the 401(k) space that remains arguably one of the largest untapped opportunities, over $10 trillion of assets. How do you think about private markets potentially penetrating that marketplace? What might be the entry point? And what sort of conversations are you guys having? Is that an area of focus today?
It is an area of focus. You can imagine it's a topic we're spending a lot of time on and have been for years, whether through our role at StepStone, helping to figure out the role of alternatives within defined contribution plans. Whether you think about our international business, we're actually some of the groups that we work with in Australia and parts of Latin America, Mexico, etc., are really more target date-oriented funds. In our view, look, Jason, our partner, has been on record saying we don't think it's necessarily regulation or legislative changes that need to take place for adoption to increase, although a more full-throated supportive comment would certainly not hurt the situation here. We are encouraged by some of the messaging that we are hearing here.
But In terms of where we think the opportunity goes, our expectation is probably largely through target date funds as opposed to single line items where individuals are selecting specific funds or managers to go into. Again, as we think about that opportunity, believe that the multi-manager approach that StepStone has taken, believe that our experience working with defined contribution plans and other parts of the world, and believe that the data and technology advantages that we have may all serve us well as we think about the retirement opportunity.
Great. Well, I'm pretty well to leave it there. Scott, Mike, thank you very much.
Thanks, Mike. Appreciate it. Thanks, everyone.