Hey, hello everyone. Good afternoon, welcome to our next session here. I'm Ben Budish, Barclays analyst covering the US brokers, asset managers, and exchanges. For this next session, we've got from StepStone, Scott Hart, CEO, and Mike McCabe, Head of Strategy. Scott, Mike, thanks so much for joining us. Thanks for having us. Thank you. Maybe just to start, can you give us a brief overview of the company for anybody who may be unfamiliar, a little bit of the history, and you know, talk about what does it mean to be a kind of solutions provider in the industry? Sure. I mean, just in terms of the history, StepStone was founded in 2007. We originally got our start as a private equity focused firm, but over the last 16 years, have expanded into areas like private credit, infrastructure, and real estate, and have really become one of the largest and most active investors across the private markets. But I think there were a couple of things that we observed at the time of our founding. One was, we appreciated the real value of the private markets, whether the governance model, the control orientation, or the returns resulting from the strategy. But we also recognized that there were challenges with accessing the private markets, and that no two investors were exactly alike. So we really set out to build a firm that helped address those challenges, and address those challenges for a wide range of different investors, which is sort of what we've now started to phrase as solutions provider. But when we think about being a successful solutions provider, it really requires a few different things. One, that we take a listen first mentality, really understand the challenge that we're helping our clients to address. Two, we've got to have a comprehensive private markets toolbox. In our case, that is the four different asset classes that I just mentioned, and really three different strategies that we use to access the private markets: primary fund investments, secondaries, and co-investments, which we think have tremendous synergies when done together, but also have important portfolio construction benefits over time. And finally, important that we're able and, and willing to work with our clients in whatever way works best for them, whether through an advisory relationship, a separately managed account, or increasingly through commingled or evergreen funds. So that's really what we set out to build. And what we offer to our clients today is really a, a cost-effective and efficient way for them to access the, the private markets, a part of the market that has become increasingly global, increasingly complex over time. And so oftentimes, our clients, who may have limited resources to sit at a single office location, look to us as an efficient way to access the private markets. Great. You know, one of the kind of talking points I've heard from you folks is, is the amount of data you collect. Given where you sit between LPs and GPs, you collect massive amounts. Can you talk a bit about that advantage, you know, versus some of the other solution providers, what that enables you to do? Sure. Well, I think to start, unlike the public markets, where data tends to be available to those who want it, in the private market, data is really available to those who are participating in the asset class. And so as one of the largest and most active investors, we've got over $600 billion of total capital responsibility. We are typically allocating over $80 billion into the private markets on an annual basis. We have access to a tremendous amount of data. It's very high-quality data in the sense that it comes directly from GPs and LPs. To your point around sitting between LPs and GPs in the market, some of the highest, and most valuable data in the sense that it's not just fund-level returns, but oftentimes down to the underlying portfolio company or asset level, including underlying cash flows and operating metrics. And so again, not only a tremendous amount of data, but very high quality and valuable data. I think importantly, again, when we think back to the founding of the firm, recognized early on the importance and the differentiation of data, and therefore made a heavy investment in building out our own technology that would allow us to capture and analyze that data over time. And because we own our own technology, it's provided us the flexibility to launch new tools, to use that data in a variety of different ways. Whether to inform our own investment decision making, whether to help our clients who oftentimes value having access to the same data, or increasingly, what we're finding is to help power the models and the tools that help drive some of the new products, particularly in areas like the private wealth space, that we are launching today. So again, tremendous benefits as a result of the vast amounts of data that we've got in the private markets. Great. You know, the kind of high-level question, can you talk a little bit about the company's growth algorithm? So at your Investor Day a few months ago, you kind of stated you expect FRE to double at least over the next five years. So maybe unpack- ... four years, at call it 20-30% larger than our prior funds. And so we're seeing a sequential increase, but when we look at our fund sizes, they're between $500 million and, call it, $3 billion or $4 billion. So these aren't $15 billion-$25 billion funds that require a little bit of a leap of faith for growth. These are, these are fairly modest size funds. The third algorithm has to do with our private wealth platform, where we've launched three products now called SPRIM, Spring, and Structure. And our growth algorithm in the retail space is in its very early days, but we've now reached roughly $2 billion of AUM. We have a very large team consisting of nearly 50 professionals dedicated to raising capital through the RIA channels, IBDs, and wires. When we combine the maturation of our asset classes with the growth of our managed accounts and our commingled funds, and then taking those institutional solutions and making them available to our retail clients, the fourth leg, if you will, of our margins of our growth story, comes from margins. We would expect to see margin expansion contribute to our expectations to doubling our FRE over the next five years. Got it. Really helpful. Maybe a question about your customer base. So I think you recently disclosed you generated, like, 65% of trailing twelve-month management advisory fees from clients outside of North America. How do allocations to alternatives, you know, thinking high level, compare within your international versus US clients? And what are the other key differences we should understand between those two client bases? Sure. I mean, I think the mix of revenue with, as you said, 65% coming from clients outside of the U.S., is really the result of a long-standing focus and effort on the international markets. And I've referenced a few of the key observations that we made at the founding of the firm. Another one was that the private markets were becoming increasingly global, both in terms of where investments were being made, but certainly in terms of where some of the LP capital was coming from. And so one of the things you've heard us talk about for an extended period of time is the global and local approach that we have taken, having built out a 25-office footprint around the world. Each of those offices led by local professionals, who have key relationships on the ground, understand the local business customs, and have been a big part of the growth and the revenue mix that you referenced. If I think about, you know, the allocations of some of those international investors relative to the US, like, if you had to generalize, they are still lower today. There are still pools of capital, in some cases, very large pools of capital, that may have 0% allocation to the private markets. They're going from 0% to low to mid single digits. So I think the fact that we have spent the last, you know, 15+ years spending time in places like Australia, Asia, Middle East, Europe, has positioned us well, particularly when over the last year or 2, you know, clearly part of the narrative has been around the denominator effect, the impact it's had largely on U.S. institutions, resulting in more private markets firms looking overseas. We found ourselves very well positioned as a result of the time and the relationships that we've built there over the last 15 years. Got it. And then maybe kind of a similar question in terms of your customers and how they're thinking about their allocation to alts, and how is that informed by the current macro environment? Is there... You know, it sort of seems like the messaging, this denominator effect issues are going away, but there's still some issues around capital return. But just in general, you're kind of in a good position to talk about this being a solutions provider. How are your customers thinking about overall allocations to alts, and how might this evolve over the next year or so? Yeah, I think we've got a unique perspective in the sense that we operate as both an LP and a GP in our business. And, look, I think it depends a little bit whether you're talking about their target allocations, or where they stand relative to those target allocations today. What we're not hearing about target allocations is that any of our clients are looking to decrease allocations, if anything, looking to maintain or, or grow over time. The challenges you just alluded to is that over the last year or two, many investors have been at or above their target allocations as a result of the denominator effect, namely, the fact that the public markets had traded down and private markets had not seen the same decline in valuations, and distributions had slowed down, and that combination resulted in over allocations of the private markets. So those investors that found themselves in that situation have been much more selective about which managers to invest with, which strategies to prioritize. We have found ourselves in a fortunate, you know, position as a result of the diversified nature of our business, where many of the strategies that we manage, whether focused on secondaries, which have actually been in demand in this market environment, whether co-investments, which have really emerged as one of the key ways that an investor can lower their weighted average fees to the private markets, those strategies have continued to be in relatively high demand. The other thing I would comment on is, it's just hard to generalize at times, right? So I've talked about the international opportunity. I'm sure we'll talk about private wealth, which is another area where we think investors are generally under-allocated to the private markets. Even some of the asset classes that we've spent our time, areas like private credit and infrastructure, are ones where investors have generally been under-allocated to the asset class and therefore, have room to grow. ...Certainly. So coming back to StepStone, and maybe your asset, the sort of asset classes in which you play. So you started out as primarily a private equity solutions provider, but you've diversified over the years. So can you talk a bit about that evolution, what the current mix looks like, and, and where do you kind of see this going, you know, in the future is? And is that, you know, customer-driven? Is that sort of being informed by the market? How are you thinking about that? Yeah. So it really has been customer-driven. Mike, actually... I was looking at Mike because he shared, you know, a great anecdote during our Investor Day, whereby some of our earliest clients that we worked with on the private equity side would turn to us and say, "Look, we love StepStone and what you've done for us in private equity. We wish we, wish we could find a similar solution in areas like infrastructure, real estate, private credit." And so it really was client-driven. You hear that enough times and come to realize that this solutions-oriented approach that we have taken in private equity would work well across each of these asset classes. The key was that we needed to go out and build large, experienced senior teams that had built their careers operating in their respective asset class, the same way we had in private equity. And so, throughout a number of years, we brought on large infrastructure, real estate, private credit teams, and then most recently, subsequent to our IPO, acquired Greenspring Associates, which was really the leader in the venture capital and growth equity space, really a continuation of that same strategy. On venture capital, can you talk a bit about the appetite for that right now? I think private equity is so kind of front and center in this space. We're all kind of aware of, again, denominator effect issues and the like, but what about in venture capital? What's the current appetite like there? Yeah. So look, we've come off a period in 2021 and the first half of 2022, where the market, there was this exuberance, the volume of activity, the valuations that were being paid, you know, were significant. And what we've seen over the last, you know, really year, year and a half is a return to some normalcy. I mean, actually, if you look at the current volumes and the current valuation levels, much more in line with historical norms, and we think that's generally been a healthy trend. But again, it's an area where somewhat difficult to generalize, right? The venture market has probably been more largely dominated by U.S. investors like endowments, foundations, family offices. That's certainly true even if we look at the legacy Greenspring and investor base. But there have been large pools of capital or even categories of capital that had not been significantly allocated to venture, whether we look at U.S. public pensions, we look at certain international markets where many venture managers didn't need to take the time to go and travel historically, or again, the private wealth channel. And so the combination of StepStone and Greenspring, StepStone having had key relationships in each of the areas that I just mentioned, has really opened up a number of opportunities, whether that is providing separately managed accounts, whether that is the launch of our, venture and growth-oriented product called Spring for the private wealth channel, you know, or expanding existing strategies like our venture capital secondary strategy that we're currently in market with. Okay, so you mentioned secondaries. Maybe we'll spend the time... a minute on secondaries kind of more broadly. So, you know, in the past, you know, you've talked about this as a pretty important emerging strategy. So first of all, again, high level, how big is the opportunity here, and what are the key drivers for success from your end? The opportunity set for secondaries is best characterized as a derivative of the primary market. You know, every year, some percentage of the primary commitments that have been made turn over in the secondary market. And so as the primary market goes, so goes the secondary market. With trillions and trillions of dollars committed since the GFC, we expect that some percentage of those commitments will continue to turn over in the secondary market. So the opportunity set is enormous. It's been running at roughly $100 billion-$125 billion per annum. A large part of that growth has also come from a part of the market that I don't think any of us expected to see, which was the general partners deciding to use the secondary market as a way to do two things: first, create liquidity for some of its LPs, but more importantly, try to hold on to certain assets that are performing well. There are some assets in the private markets that you just want to hold on to forever, and GPs recognize that, and they've used the, you know, the technologies, if you will, in the secondary market to solve both of those problems. And so you're looking at $100 billion-$150 billion a year secondary market at the moment, and we would expect that to continue to grow. The first half of this year was a little bit slower, and why is that the case? Following the repricing of the public equity markets, the rise in interest rates, question marks around inflation, the gap between the bid and the ask for assets just gapped out due to the uncertainty. That creates a bit of a stalemate, and transaction volumes slow down, and so we certainly saw that in the first half of this year. GP-led secondaries slowed the most, and LP secondaries started to pick back up. Maybe to put some statistics around some of this relationship between LP-led and GP-led, dial the clock back 10 years, 90% of the market, secondary market, consisted of LPs selling their interests. Roll the clock forward to the year 2022, 50% of all the volume came from GP-led secondaries. So we've seen this tremendous growth between the GPs looking to the secondary market and LPs now thinking about: What do I do with this portfolio that I've built over the last 10-13 years in a bull market?... and are there opportunities to reposition the portfolio, and can I sell? So what we're facing now is basically a countercyclical LP selling environment and a procyclical GP continuation vehicle market combining to create what we think is ostensibly the golden age of the secondary market. And that doesn't just apply to private equity; it applies to venture capital, it applies to real estate, and increasingly, we're seeing it apply to infrastructure and private credit. Well, great, Mike, you kind of touched on my other questions here, in terms of, you know, the growth outside of private equity and the balance between GPs and LPs. Maybe just on the GP, LP kind of question, you know, you mentioned the GP portion has kind of come from, like, 10% to 50%. Do you think that sort of stays even with LPs, or does that—how does that evolve, kind of in the future? Or is, or is it impossible to say? It's hard to say, except for we're not going back. I think the genie is out of the bottle, the value is there. People are seeing it, they're realizing it. GPs are seeing it, LPs are seeing it. So we think the GP-led volume will continue to be a significant portion of the secondary space. It will ebb and flow because it is a procyclical strategy. There will be times when it is perhaps as much as 60% of the market as it was two years ago. Today, it's about 40% of the market, but it's not - it's not - we're not going back to the days of where it was, you know, 10% or less. It's here to stay, and it's here to grow. Got it. Moving to some other asset classes. You know, infrastructure, private credit are in quite high demand, kind of across the board. So can you talk a bit about StepStone's exposures here, and what sort of growth do you expect from these asset classes? Yeah, so our exposure, it's meaningful today, but each of our infrastructure and private credit businesses represent about 20% of our total AUM. Each of these asset classes are now trillion-dollar-plus asset classes across the private markets. And one of the things that we outlined during our Investor Day was the trajectory that each of our private debt and infrastructure, as well as real estate businesses, have been on relative to private equity, in the years since we launched those businesses. And what you see is the growth has been tremendous, but also, if you overlay that growth with our private equity business, you see that the growth opportunity going forward continues to be quite attractive. And some of that is driven by sort of asset class dynamics, some of it is StepStone specific. So if I think about infrastructure first, you know, clearly there's been a tremendous amount of interest in the asset class, not only because of the, you know, potential inflation protection, the potential yield orientation, the lack of correlation with other, with other asset classes. But it is also just a growing opportunity set with an increasing number of investable GPs, and really, we're seeing that market develop in a number of different ways that is similar to or rhymes with what we've seen in the private equity market. When you then overlay that with our own capabilities, we think we've built a clear market leader in our infrastructure business. We've got a large team with 15 partners leading that effort. The team is global, largely based out of Australia, New York, New York, Europe, Toronto, so many of the key markets. And, you know, although we've experienced tremendous growth to date in infrastructure, that's almost been with one hand tied behind our back in the sense that we have not used all of the tools we've got in our toolbox. It wasn't until this year that we launched our first infrastructure commingled fund, with our co-investment fund, and then more recently have launched a private wealth-oriented product called Structure. And so we think there's exciting growth that lies ahead for infrastructure. Private debt story, somewhat similar. I mean, the way our team thinks about the asset class is you've really got a core allocation to senior secured direct lending. We think it's all... an all-weather strategy, but there are also opportunities over time to diversify one's sources of deal flow into different specialized areas. Today, areas that we're focused on are, you know, real estate and infrastructure, private credit opportunities, and there are also opportunities to lean in and try to enhance your returns, during periods of potential distress or where credit opportunities are available. But even if I, you know, rewind back to the core allocation to direct lending, with base rates having increased to where they have, there's been an opportunity to generate low double-digit gross asset yields when investing in the highest part of the capital structure alongside high-quality managers, at a time when the private credit asset class is, you know, viewed as more battle-tested than it had been historically. And so, seeing tremendous interest in the asset class. Our team, I think, has taken a unique approach, which the head of our private debt business described in detail during our Investor Day. Mark walked through the platform that we've built, where we're essentially negotiating separately managed accounts with GPs in order to have a certain amount of investment capacity to help our clients get and stay invested, which is really key to maximizing the investment dollars returned. And again, it's an approach that's differentiated and has served us well over the last several years since the team joined StepStone. Great. Move over to retail now a little. You know, you've had some, as you mentioned before, some very nice growth in SPRIM. Can you talk a little bit about this product? You know, what's unique about it versus competing, you know, retail alternative investment products? Well, I think the first thing that's unique is the approach that we took to developing the product. We took much more of a solutions-oriented approach, consistent with what I've described across the rest of the business, where rather than simply launch the product that we wanted to launch, we went out and listened to understand what the private wealth channel was looking for. What fed back to us was you needed a product that had no capital calls, had 1099 tax reporting, but also a product that was available down to the accredited investor level. If making this product available down to the accredited investor level, you know, there's an understanding that this might be the only ticket, the only investment that an investor is making in the private markets. Therefore, you need to create a single-ticket solution, which is what we've created with SPRIM, whereby you could have instant diversification not only across vintage year, asset class, underlying holding, but also across managers. I think one of the unique things that StepStone has to offer is the multi-manager approach that we take, whereby you're not taking single manager risk, as a result of our, a result of our strategy. One of the more recent announcements, I think, it was on the last earnings call, you talked about this, was that SPRIM can now receive daily subscriptions via a ticker. So can you talk a little bit about how this works? You know, what's required for an advisor to offer this kind of onboarding, and what are the implications of this, you know, for future growth in your view? Yeah. So clearly, as you heard from the last earnings call and some of the follow-up conversations, was the level of excitement that we've got around this development. I think, when you step back and think about our goal with SPRIM, of removing any of the barriers that existed for individual investors to get access to the private markets, I described how we did that with the product we designed. But clearly, making this advancement as it relates to the subscription process, is another big step in that direction. And so in terms of what was required, a tremendous amount of data and modeling capability that really drives the daily valuation engine that we've developed over time, that we were already using to establish the net asset value of the fund on a monthly basis. But we've now fully transitioned to using that daily valuation engine on a daily basis, which is key to enabling the daily subscriptions and the use of the ticker. Also requires that, you know, custodians adopt the approach, and so a tremendous amount of time and effort went into educating the market and these different platforms as to the benefits. But we've been live now since mid-July. I think it's having the intended, you know, consequence in terms of, again, really removing what was a, you know, challenging process, primarily for RIAs. You know, filling out long subscription documents has become much easier with the use of a ticker and being able to buy essentially with a click there. Helpful. I wanna, I wanna dig into that kind of comment on the RIAs as well, but just on the product side. So you've also got Spring, your private venture and growth fund, and then you more recently launched Structure. So can you talk about these a little bit more, you know? And when you think about your retail product lineup, what else might you have in the works to kind of round out the offering there? Yeah. So if you think about SPRIM as really that, that single-ticket solution to the private markets, what we've done since establishing SPRIM, is now think about, think about what other specialized areas we could fill in around SPRIM. And the way that we prioritize strategies was looking at, you know, where were there really opportunities that existed in the market? And our view was that there were not competing products or other solutions as it related to venture growth or infrastructure. And where do we have, you know, again, really market-leading capabilities? And with the combination with Greenspring, as well as our market-leading infrastructure capability, thought those were two, obvious areas for us to focus. SPRING, you know, has now been up and running for a period of time. Has gotten off to a fast start, you know, helped by the success and the time that went into building out the syndicate for SPRIM and the relationships that we've built there. Structure, obviously a much newer effort here, but one that we think has a tremendous amount of promise. But as you look forward, you can imagine that, when you think about the other areas that we've got capabilities within StepStone, those will be other areas that we consider whether it makes sense to launch new products. Got it. So then maybe taking a step back, but sticking on the retail theme. So can you talk a bit about your distribution strategy and the progress you're making there? You know, how many platforms is SPRIM on? Is it wires? Is it RIAs? And how do you think about those channels? How do they kind of compare to each other? Yeah. Yeah, we've always described it as sort of four different legs to the stool, starting with RIAs. Over time, adoption from the independent broker-dealers. Once you've established enough scale to alleviate any sort of concentration issues with the wires, it can obviously be a very important part of the distribution strategy. And the fourth one being international. And again, we've really taken them in that order, with the RIAs being some of the early adopters, helping us to build scale over time, helping to build a track record, and again, eventually get to a size and a scale where you could be in a position to bring on IBDs and wires. We were probably pleasantly surprised at the early success that we had internationally, particularly in markets like Latin America, which is probably an upside relative to our initial expectations. But I think we've taken a very similar approach after SPRIM to building out the syndicate for Spring, and we'll now take a similar approach to Structure. Overall, around over 180 different platforms, SPRIM is on one wire, and we'll continue to hope to make good progress really across the board there. And then maybe one last question there, just thinking competitively. You know, we hear your larger peers all talk about the wires. Is that channel getting more crowded? Is the RIA channel under-penetrated? I think, you know, the tech- some of the tech-enabled platforms are maybe more suitable for the RIA channel. So how do you kind of compare and contrast the competitive environments in those two different go-to-market strategies? Yeah, look, I think essentially what I'm saying... I mean, they each play an important role. And while, you know, yes, there is competition for shelf space at the wires, we also have long-standing relationships, not only from some of the evergreen products that we have marketed, but also from some of our commingled strategies over time as well. And so, look, I think all play an important role. I think clearly, the development with the launch of the ticker will be very important for the RIA channel, is our expectation. And so, you know, really, as we've thought about rolling out the strategy, have felt that each of those four legs of the stool are going to play a very important role. ... Got it. Maybe let's pivot over to the realization environment. So you currently have about $600 million of net unrealized carry on your balance sheet. You've indicated, you know, the realization environment continues to be challenging, but there's some green shoots beginning to emerge. So any kind of update to that view, and what sort of macro factors should investors be looking at as an indication that the environment is getting ready to improve? And how do you think the realization, you know, based on, again, what you're seeing, that environment sort of evolves over the next 6-12 months? Yeah, no real change to what you described, and I think Mike touched on it as he described the bid-ask spread that existed in the secondaries market. I think we've seen the same thing that has existed in the buyout and the M&A market more generally. So yes, certainly seeing green shoots. You've seen the IPO window at least crack open. But I think what's needed before we see a more meaningful pickup in realizations is just continued stability. You know, clearly, the enemy of getting deals done is a high level of uncertainty. And so as there's more certainty, whether that's driven by valuations in the private markets, whether it's driven by the economic outlook, I think we've seen a narrowing of the bid-ask spread. Certainly, one of the things that we look to as an early indicator is our own pipeline of opportunities that we're seeing on the co-investment side of our business, or even on the secondary side, given the GP-led secondary trend that Mike mentioned earlier. Because look, when we think about realizations, there's really a few key paths to realization, whether IPO, strategic sale, but certainly with the amount of dry powder that exists in the hands of private markets investors, or secondary investors, would expect to see secondary buyouts and continuation vehicles as continued sources of potential liquidity. Got it. And, you know, given most of your unrealized carry is from 2018 or prior vintages, if the environment doesn't improve, if we kind of stall out for a little longer, how do you think about the risk to the IRRs of these investments? Do you feel like you're in a comfortable spot, or at what point do things become more challenging from that, you know, that viewpoint? Yeah, well, I think today, when we look at the underlying operating performance of our portfolio, feel very good about, about the health. So I think, I think you're right to highlight the pressure would be on IRRs. I think if, if we don't see an improvement in the realization environment, that leads to longer hold periods. As long as the underlying performance is strong, I still think these will turn out to be very profitable investments, but perhaps with some pressure on, on IRR. And that's what you see, really, when you look at the data through past cycles. When you look at the 2005, 2006, 2007 time period, and again, using the tremendous amounts of data that we have at our fingertips, what you saw was you still across the market saw private equity-type multiples that were generated on those investments, but lower IRRs overall as hold periods were extended. I think we'd expect to see something similar if that were the case. Understood. Maybe a kind of similar macro question, but on the deployment side, you've got about $17 billion of dry powder. Where do you see the best opportunities to put capital to work, and over what sort of timeline would you expect this capital to be deployed? Do you think it's sort of a normal-ish run rate or any other, you know, kind of considerations there? Yeah, I mean, hard to pick just one area when you think about how broad the business is across the different asset classes and strategies. I mean, clearly, where we've seen the most activity of late has been in the secondaries space. As that bid-ask spread has narrowed, there have been meaningful buying opportunities for us in the secondary space. Again, not limited to private equity, but really across the board. But I think where we're seeing the most meaningful pickup in our pipeline right now is probably in the co-investment space. Probably a bit more heavily weighted towards the U.S. versus other international markets right now, but diversified across different sectors and strategies within the U.S. You know, again, a key, key to us is seeing as much deal flow as possible so that we can be very selective as we look to deploy, typically over a three-plus-year time period. We feel quite confident we'll be able to continue to do that. Got it. Moving over to the capital side. So in terms of capital management, can you talk a little bit about your top priorities here? Maybe kind of give us a refresher on your new dividend policy. And, you know, in terms of M&A, how are you thinking about, you know, opportunities? How... What, what's your kind of appetite like? What's the environment like in terms of, you know, your pipeline? We were thrilled to announce last year the change in capital management policy by creating a dual dividend. And maybe I'll share. I'll frame the problem first, and then I'll walk us through the solution and then how it affects our overall business. To begin, StepStone is an incredibly capital-efficient business, and we are also a very balance sheet-like business as well. And that combination creates a really unique situation when we develop a dividend, beginning with some sort of payout ratio on our free cash flow. Well, our free cash flow comes from two sources. We have a very reliable, predictable free cash flow coming from our fee-related earnings. We could set a payout ratio to that and sail right through it quite comfortably. The cash flow stream that comes from performance-related fees is a little more episodic and a little more difficult to predict. Combining those two cash flow streams into one and then trying to set a payout ratio to fund the dividend can result in a lot of cash that can get trapped during times when the capital markets are robust, distributions are strong, and performance fees are strong. So what we decided to do was bifurcate those two cash flow streams and create a payout ratio and a dividend policy on a quarterly basis that's tied to fee-related earnings. And then augmenting the fee-related earnings dividend, we supplemented that with a once-per-year payout of our performance fees that are realized throughout the course of the year.... So we're accumulating cash each quarter as performance fees are realized. Then the board will sit together at the end of the fiscal year and, at its discretion, elect to pay out the propensity of those performance-related fees to our shareholders. So what we have are two dividends under one roof, one that's highly recurring and highly predictable, and the other that will be accumulated throughout the course of the year and paid out each June. So, as a result, our shareholders experience what we, as employees, experience through compensation tied to some sort of base and bonus, which is FRE, and then episodic carry payments. So we've now created quite a strong alignment of interest between ourselves and our shareholders by having our shareholders experience the same cash flow streams that we experience. Now, going forward, how does that affect our ability to execute on M&A, growth, whatever opportunities may present themselves to us? Scott's mentioned this several times. Our number one priority here at StepStone is to fund growth opportunities, whether it's asset classes, whether it's distribution, whether it's teams or technology. We're, we're funding growth as our number one priority. Whatever cash we have available after funding growth, we will distribute to our shareholders. If a transaction were to present itself, as it has in the past, like Greenspring or other acquisitions we've made, we feel that our currency, that the currency that we have in the form of our equity, is extraordinarily valuable. If you recall, the Greenspring transaction was largely funded by using StepStone equity, then a little bit of cash, which was funded out of a revolver that we took down to fund the transaction, and then with some sort of earnout, so that alignment of interest was created from the beginning. I think that's a really good working model, a poster child, if you will, for how we see M&A going forward. It's really not relying on a balance sheet or capital markets. Really, it's really about using our currency in the form of equity to create an alignment of interest so that all members of the boat are rowing in the same direction, and then we'll use some cash and some earnout to cover any shortfall the equity doesn't cover. Great. Well, unfortunately, we're just about out of time. But, gentlemen, what a pleasure to have you. Thank you so much for being here. Thanks, Ben. Thank you, Ben. Thanks, everyone.