StepStone Group (STEP) Q4 FY26 earnings call: guidance and Q&A

Addressing concerns about short-term mispricing in secondaries for evergreen funds and how valuation methodologies account for day 1 markups vs. underlying asset performance.

Mike McCabe explained that initial marks for acquired fund interests are typically the sponsor's latest reported fair value. If bought at a discount, the buyer may report a value above cost, reflecting the difference between purchase price and fair value. He emphasized that StepStone's returns primarily come from asset appreciation after purchase, not just the initial discount, citing Spring's 37% net return with 33 points from post-purchase appreciation.

“The real question here is not whether purchase price and fair value can differ, of course, they can. The question is whether the fair value is backed by rigorous independent and transparent valuation processes.”

asked by Ben Budish · answered by Michael McCabe

Whether the "day 1 markup" concern is limited to public market investors or also shared by StepStone's fund investors and distribution intermediaries.

Jason Ment stated that while clients ask due to press coverage, StepStone's explanation of the secondary market dynamics and the real, albeit unrealized, returns has been well-received by the channel and financial advisors.

“yes, they've asked because the press has told them to ask about it, but they understand what the dynamic in the secondary market, and they appreciate that, as Mike said, the returns while unrealized are real and the performance in each of the funds over the life to date has supported that.”

asked by Kenneth Worthington · answered by Jason Ment

Details on the customer build-out, early traction areas, and engagement with plan sponsors, fund managers, or record keepers.

Jason Ment confirmed engagement with all parties (plan sponsors, target date managers, DC aggregators, record keepers). He expects early traction from target date managers, potentially through customized TDFs or new series. StepStone's approach emphasizes customization and asset class coverage.

“Yes, we're talking to plan sponsors. Yes, we're talking to the target date managers. Yes, we're talking to the DC aggregators, right? Yes, we're talking to record keepers. It's yes to all.”

asked by Kenneth Worthington · answered by Jason Ment

Views on plan sponsor embrace of alts in DC, steps to support adoption, and the degree of legal protection from the DOL rule versus congressional action.

Jason Ment expressed satisfaction with the DOL's process-based proposal, which aligns with industry advocacy. He noted that plan sponsor adoption varies; for off-the-shelf target dates, it's mainly education. He believes the DOL's approach has "better legs" than congressional action, despite congressional action offering stronger long-term protection.

“We like the idea that it was process based rather than asset class specific. We don't want Washington picking winners and losers.”

asked by Michael Cyprys · answered by Jason Ment

How StepStone manages liquidity in secondary private wealth vehicles, particularly if redemptions exceed 5% for extended periods, and the role of cash flows from realizations.

Jason Ment explained that extreme diversification allows for predictive cash flows from realizations, which can satisfy significant liquidity demands. They also maintain a credit facility to manage liquidity, designed to cover max 5% redemptions for up to 18 months without asset sales. Scott Hart added that the secondary strategy's diversification and varying vintage years help generate consistent liquidity.

“we can be much more predictive in what the cash flows are going to look like coming off of realizations. And so even in -- over the last number of years where the liquidity story has been very depressed. These funds still -- in buyout portfolios, you're still seeing double-digit cash coming off double-digit percentage cash coming off the portfolio each year, right?”

asked by Michael Cyprys · answered by Jason Ment

How StepStone sources venture secondary investments and what differentiates their team and process.

Scott Hart attributed their lead to market-leading primary capital deployment, strong GP relationships, and resulting sourcing advantages. He highlighted their proactive approach to identifying top venture-backed assets and acquiring exposure through various means (LP secondaries, GP-led secondaries, direct secondaries), building direct relationships with companies and GPs.

“our venture team has done a particularly good job of is to be very proactive about identifying those top 50, those top 100 venture-backed assets that they want to own and then finding and using a variety of different ways to go and acquire exposure to those companies in the most attractive way possible.”

asked by John Dunn · answered by Scott Hart