We're all set to get started. Thanks for staying with us here on day one of the Morgan Stanley Financials Conference. I'm Mike Cyprys, equity analyst covering brokers, asset managers, and exchanges for Morgan Stanley Research. For our next session, we're thrilled to have with us Scott Hart, the CEO of StepStone Group, and Mike McCabe, the Head of Strategy. Scott, Mike, thank you. Welcome. Thanks for having us. As many of you know, StepStone is a global asset manager with over $220 billion of assets under management, over $800 billion of assets of total capital responsibility, StepStone's one of the world's largest alternative investment solution providers. Thanks for making it out here today. I thought we'd start big picture on the business model. Today, your business spans separate accounts, SMAs, commingled funds, wealth, data, advisory, all the different asset classes from private debt to infrastructure and so on. Unlike some of the peers, your business model is a bit more capital light, open architecture, data driven. How would you define the core differentiator of StepStone today, and where do you think the market still under appreciates the breadth and the durability of your platform? Well, first of all, Mike, thanks for having us again this year. Always good to be here. Look, I've probably increasingly been answering questions like that by starting with our mission at StepStone, which is to be the trusted partner of choice for private market solutions globally. I think in a lot of ways it captures not only what we do, but some of the key differentiators. If you just kind of break down the mission, trusted partner to both our clients, given the client-centric model, and to our GPs, given the scale of capital that we bring to the table. You mentioned over $800 billion of total capital responsibility. We and our clients are deploying $75 billion per year into the private markets. Asset classes, private markets, diversified across private equity, venture, infrastructure, private credit, and real estate. For those that know our history, having started in private equity, you don't look at the firm today and see a private equity firm that just dabbles in these other asset classes. We think we've built true market-leading businesses across each of the asset classes, and really one of the most comprehensive private markets platforms in the business. We're global, 31 offices around the world. We've often talked in the past about the fact that about two-thirds of our revenue are coming from clients outside of the U.S. That percentage has come down slightly in more recent years as the wealth business, which is more concentrated in the U.S. has grown. Still an incredibly global business, diversified across a number of different end markets. Lastly, solutions. I think that's probably the part of the business that has evolved the most from the early days. In the early days, we didn't talk about being a solutions provider. We talked about customized portfolios, either in the form of advisory accounts or separate accounts. Over time, came to realize that a commingled fund could certainly represent an attractive part of an overall solution. Over the last five, six years, came to recognize that there was really an opportunity for us to develop funds that met the needs of an entire class of investors, like the private wealth space where we operate today with close to $20 billion of AUM. You see it in some of the more recent hires that we've made, a new head of insurance solutions, head of retirement solutions. You see it in the partnerships that we've entered into on the data side with our data solutions. In a lot of ways, we've seen that solutions model really evolve over time, and I think will continue to evolve as we look forward. I think that captures a lot of the differentiation, again, the scale, the comprehensive nature of the platform, the diversification of the business. I think that's probably also the piece that may be under appreciated in the market. It's certainly easy to focus on the growth of the wealth business or the trend behind secondaries investing today. If you look at every quarter, every year since we've gone public, it was really a different asset class, a different strategy, a different fund that was driving some of the success of the business. It's one of the things that gives us comfort in our ability to continue to grow going forward. Great. Why don't we move on to growth. Fiscal 2026 was a record year for capital formation, a record strength in your undeployed fee-earning capital that provides visibility on growth. As you think about the next several years, which areas would you say you're most convicted in the growth outlook? Yeah. Thanks, Mike. You're right. We had our record year, best year ever in the history of the company with a $38 billion number for the year. That $38 billion is broken down as $22 billion came from managed accounts and $17 billion came from commingled funds. When we think about the year ahead, as Scott pointed out a minute ago, there isn't one or two commercial structure that we're focused on or expecting or anticipating some success. It's really a success across an incredibly diversified platform where we think on the managed account front, commingled front, as well as private wealth, undeployed capital, and margins are all topics for maybe a minute or two of conversation here. In the managed account world, StepStone's success has really been client stickiness. We've enjoyed a 90% re-up rate with all of our managed accounts. When they do re-up, they tend to expand the account by as much as 30%. When you think about the $22 billion that we raised last year in managed accounts, eight of that came from new relationships or existing relationships that expanded into another asset class or strategy. That just creates a future pipeline of re-ups. You can see the virtuous cycle of how the managed account growth algorithm works. We understand it's tough for you guys to model it because there are over 300 of them in our platform. That 90% re-up rate and expanded data point I think serves us well. On the commingled fund side, all of StepStone's flagship funds are currently in the market across all of our asset classes, private equity, infrastructure, real estate, credit, and venture capital. That adds up to roughly $20 billion of potential new capital formation just in commingled funds. We're pleased to have said in our prepared remarks last quarter that we're off to a pretty strong start in our PE secondary and a few other commingled funds that are our flagships. We're excited about the re-up cycle with flagships. Pivoting to private wealth, again, we had another record quarter with $2.3 billion of private wealth flows. We're enjoying a strong quarter so far. The $2 billion plus per quarter run rate in private wealth feels sustainable. We couldn't be more excited about how we've built out such a diversified distribution platform across RIAs, WIRES, and IBDs. We add on top of those three commercial structures, the fact that we're now sitting on $40 billion of undeployed fee-earning capital. That provides us and you with a lot of insight and visibility into the growth algorithm going forward. As Scott's mentioned over the years, we take a very disciplined approach to deploying that capital. Roughly six of the 40 is going to be activated just by virtue of the fact that it's sitting in commingled funds that have yet to be activated. The balance will continue to be deployed over, call it, a four to five-year investment period. We're not going to rush to put that capital to work for the sake of putting it to work. That will just affect performance. To have that kind of visibility of $40 billion of dry powder sitting ready to be deployed is pretty exciting. That leads us to the final part of our growth algorithm here, that's operating leverage. Mike, you were one of the first analysts in day one of our IPO and consistently diligent about asking StepStone about margin expansion. When we went public, our margins were around 24%, and compared to the peers, there was some room for growth there. You were right in focusing in on that question. We're sitting at 38% today. 1,400 basis points of margin expansion since we went public in 2020. We think as we continue to grow our commingled funds, we continue to grow our wealth management and other fee creative products, and the operating leverage that comes with that, we feel there is more margin expansion to enjoy going forward. Great. Why don't we dig in on private wealth, major theme for investors, for the industry, and for StepStone. Recent flow trends suggest demand is broadening across a wider set of products, not just one vehicle for you guys. What is the bigger opportunity from here? Would you say it's adding new products? Is it expanding platform access amongst your existing products? Is it getting funds embedded into home office models? If you had a rank order, what do you see is the bigger opportunity from here for private wealth? Yeah. I think you're right to highlight that the flows have broadened across what's now a suite of five different fund families. Very different from where we started when we launched our wealth business. We tried to take the same listen first, solutions-oriented approach. That led us to launch SPRIM, which was our single-ticket solution to the private markets. At the time, it wasn't clear if that might be our only fund. Over time, as we expanded our capabilities, as the market evolved, came to realize that there was a real opportunity for more asset class-focused funds, which led to the launch of SPRING, focused on venture capital, STRUCT focused on infrastructure, CRDEX focused on private credit, and STPEX focused on private equity. Given that suite of five different fund families that really kind of cross all of our asset classes with the exception of real estate, I would say the big opportunity is probably not further product launches. I mean, we'll always keep our ears open and are heavily engaged with our partners in the channel to the extent that there are opportunities for new products where we are positioned to win. That's probably not the bigger driver going forward. I think it's the continued expansion of the number of different platforms that we work with. Today, over 700 different partners in the channel, of which almost 500 we've been working with for over a year. Those groups that we've been working with for over a year, 54% of them have more than one of our funds on the platform. I think that tells me two things. One, there's obviously a great opportunity to cross-sell, but two, there's also further room to run there. We often track where are some of the newer funds like STPEX and CRDEX and STRUCT that relative to where SPRIM or SPRING were at in a similar point in their life. I think that's where probably the big opportunity lies is the continued expansion of our relationships with new and existing channel partners there. I think beyond that, I think taking some of the technology and the strategies that we've developed and applying them to, like you said, models, eventually think there will be applications in and around retirement over time. I mentioned earlier that our wealth business today more heavily focused on the U.S. I think there's an international opportunity for us as well. Those are some of the different levers that we'll continue to pull as we think about growing the wealth business. Now, as compared to the institutional channel, private wealth introduces a different set of operational questions as you think about monthly flows, deployment cadence, liquidity optics, education. How are you approaching the balance there? As the Evergreen funds become a bigger part of the business, how do you maintain institutional-level underwriting discipline while also serving a more retail-oriented channel? Well, I think you're right. I think you summarized it well in terms of some of the differences relative to the institutional business. The comment I've often made from the early days is that the wealth business has required that we develop certain new muscles. You touched on the key points around monthly flows, around liquidity and diversification, around education. Fortunately, I think those were all things that we were well-suited to deliver on. If you think about, even in our institutional business, have always been focused on, as a partner to our clients, on education and training and knowledge transfer. That's something that came very naturally to us. I think building portfolios that have sufficient liquidity requires diversification, our multi-manager approach, we think, is particularly well-suited to deliver there. I think there were a number of different reasons that we felt we were positioned to succeed in this part of the market. It's interesting. Some things actually grow easier as you scale. You talk about how do you continue the institutional quality decision-making as you get larger. I'd actually argue that certain things will get easier for us as we get larger. In the early days, as there's more uncertainty and more variability in terms of the monthly flows, it creates some real challenges in terms of lining up a pipeline of opportunities that you're ready to execute on. As these funds have scaled, I think have actually grown more predictable in terms of some of the cash inflows as well as the distributions coming off the portfolio. As you've got increased visibility in terms of the distributions coming off the portfolio, we think certain of these funds will be well-positioned to start to deploy strategies like primary commitment. Whereas in the early days, we focused much more heavily on secondaries and to some extent, co-investments. The ability to work primaries into certain of these portfolios over time is actually the most scalable of our strategies. Think that in some ways, certain elements of managing larger funds will make things easier on our platform. To what extent do you see the business moving from more of a product-by-product sale to more of a B2B CIO-driven allocation sale, and how might that change flow durability, client acquisition costs, and ultimately margins? That's a good question. I don't know if we see it as moving from one to the other or if it's sort of more of a both end. I think we're certainly seeing with things like model portfolios that you're right, it does shift from more of a B2C to a B2B type of sale, and that's a welcome conversation in a lot of ways. I think to your point around durability of flows, we would anticipate that you probably see less volatility in terms of redemptions because you're dealing with a professional investor and decision-maker and more of a CIO type. So, that is something that we are very much preparing for. It's early days. We have funds of ours that are on seven or eight different models today, but the net asset value there is probably measured more in the tens of millions than the hundreds of millions of dollars today. Do think it's early days in terms of the trend towards models. You've also seen us take certain steps to position us well for this opportunity. We often thought about SPRIM as really a private markets model portfolio in and of itself, but I think as we've seen the trends start to pick up with models, felt the need to have more of a pure play asset class strategy, which ultimately led to the launch of STPEX, a pure play private equity vehicle, recognizing somebody else may turn the dials in terms of allocations there. We wanted to be set up to have pure play strategies across private equity, venture, private credit, and infrastructure, that could play meaningfully in model portfolios. Just given the focus on private wealth in the marketplace, maybe you could talk a little bit about how flows are shaping up so far in the June quarter. I'm sure you probably would anticipate me asking that question here. Also talk a bit in that answer how you're envisioning sort of expanding the platform presence across the product set over the next six, 12 months as well, as you think about this potential for that flow profile to evolve from here. Yeah. Look, we continue to see strength across the platform in the current quarter. If I step back to the first calendar quarter, we mentioned during our earnings call just a few weeks ago that we had a record $2.3 billion of organic inflows into our private wealth vehicles. Can say that through April and May, we're sitting about $1.8 billion with good visibility to give us the comfort that we will see another quarter in and around that range of $2.3 billion or higher. Continue to see strength across the platform in terms of new flows. It's driven by a few different things. You touched earlier on the success we were really seeing across the suite of different funds. You've seen continued solid performance of SPRIM and STPEX. SPRING, our venture fund, has continued to be a standout performer there as investors look to get high-quality access to the innovation economy. STRUCT has recently gone on its first WIRES, it'll obviously take time, as we've seen with both SPRIM and SPRING before it, but think that will be additive to flows over time. CRDEX coming off of $140 million in a month in May, driven by some rotation from other products into our vehicle, where really the multi-manager platform that we operate is resonating with certain investors. That may not be the new run rate, but certainly, I think it's a good sign, particularly given some of the noise in the market around us. That's what we're seeing in terms of the real-time flows here. I think in terms of what we'll continue to expand the platform and the platform relationships. Look, we continue to add members of our private wealth team and create new territories in the U.S., which has proven helpful in the past when we've made similar types of moves and decisions. Also expanding our team internationally. Internationally, had our first $100 million month and has been a continued area of focus. Not only in areas like Europe, but Asia, Australia, Latin America as well. Those are some of the different ways that we'll look to continue to expand going forward. The 1st $100 million a month internationally was in May? Correct. Today you own about 50% of your private wealth business, with the other 50% owned by the leadership team of the private wealth organizations. A little bit different from some of the others, which has created a little bit of noise on the P&L, given the NCI dynamics. Talk about how that might change as we cast forward into 2027, where you have a call option on that business. How much might it cost to buy in the rest, and how accretive could this be to adjusted earnings per share? Maybe a little different than what other managers have done. In a lot of ways, very similar to what we've done in the past in terms of really bringing on large senior experienced teams the way that we have across our different asset class businesses, giving them an interest in the business they were building to align our interest and really motivate the type of behavior we wanted to see, but also recognizing that we'll reach a point in time where buying in that interest on an accretive basis would make sense. Look, there's still variability in terms of what that purchase price might look like if we were to exercise the call option next September. That has been the case since we announced the agreement where both the trailing performance of the wealth business as well as the then prevailing StepStone multiple will determine the ultimate purchase price there. That multiple will be at a discount to our then prevailing multiple. If it were at today's share price, would be something like a 30% discount to our multiple, therefore ensuring that it'll be an accretive transaction for our shareholders. We really think about not only the wealth buy-in, but also the asset class buy-in that we're executing over time as the lowest risk form of accretive M&A that we could possibly do, and that there's very little execution risk. These are partners we've been working with for the last, in some cases, decade. Why don't we talk about the DC and the retirement opportunity, which appears to be coming into greater focus for the industry today with the DOL's proposed pending proposal. You recently hired a dedicated head of defined contributions. Talk about your expectations for this new dedicated team and more broadly, how you envision going after the opportunity set in DC and what might differentiate StepStone's approach? Yeah. I think our new head of retirement solutions will really work very closely with our private wealth team and with others within the organization who have been very focused on the retirement opportunity for many years now. Given our involvement with organizations like DCALTA and others, this has been a focus area for us for many years, and will continue to be going forward. I think what's difficult to do is put an exact time frame on when the opportunity will really materialize. As you said, we were pleased to see the DOL guidance come out recently. We're pleased to see that it was very much focused on process and a prudent process and laid out a number of key characteristics that I think fit well with the way that we think about the opportunity. A focus on performance and fees and really net of fee performance as one of the main drivers. A focus on valuations and liquidity, a focus on benchmarking and complexity. I think those are all things that when we think about StepStone's fee structures across some of our different wealth vehicles, when we think about the performance of our funds, when we think about some of the partnerships we've entered into on the data and the benchmarking side, I think we are very well-positioned for the same reasons that we're positioned well on the wealth side. Our anticipation here is that it'll be more of a target-date fund opportunity as opposed to StepStone being an individual line item on one's 401(k). I think that's probably the way that many are thinking about it today. Again, I think the biggest uncertainty is the exact time frame. We are encouraged, like you said, not only by the DOL guidance, but also some of the conversations that we are having, which have really picked up since Taylor joined us as head of retirement solutions. Great. Maybe shifting gears to data monetization there. StepStone's data opportunity is becoming more tangible through a number of partnerships you have with FTSE Russell, Kroll, PitchBook, and so forth. What milestones would you say you have for that part of the business over the next 12, 24 months, and how might you envision these contributing over the next several years? Thanks. Data and technology is probably one of the most exciting parts of what we do here at StepStone. In fact, everything that we do is pretty much data-driven. Over the last year, you've heard us announce three partnerships, all of which do something unique and a little bit different. Maybe we start with FTSE Russell. It had been a fascinating evolution to watch how data is being used from a benchmarking standpoint, given how the markets have been calibrated to marking their books on a quarterly basis. Then there may be some cash adjustment to that mark. What StepStone and FTSE Russell have created is a daily benchmark suite of indices within the private markets, starting with a Global Private Markets Index. Within it, there is all the asset classes. Then we've broken some asset classes and created a Global Infrastructure Benchmarking Index. We've created a Global Private Equity Benchmarking Index, which have daily marks based on the data feeds that we're getting in from thousands and thousands of funds. I'll share an anecdotal story with you. I was at the World Investment Forum this past weekend hosted by the London Stock Exchange Group, and the CIO of one of our more prominent university endowments is now subscribing to the FTSE StepStone suite of indices. I asked him, "What motivated you to become a user of these indices?" He said, for the first time in his 30-year career as an investor in the private markets, he's able to show his board of trustees a unified total return of their portfolio of both private and public investments. Typically, it's been apples and oranges. You have a lag that's cash-adjusted in the privates, but you have a real-time daily mark in the publics. That you have a daily mark in the privates with FTSE StepStone's partnership, it's opened up a new way for investors to really look at their total portfolio return. He finished the conversation by saying, "I can do it on a one-year basis for the first time in my career." We think we're unlocking something that's new. It will take time and education, and the adoption rate, I think it'll take time, but we are the only ones in the market with this available, and being in partnership with a leader like FTSE Russell, we think positions us to win in that space. The 2nd exciting partnership we announced was with Kroll. Given all the information, noise, and headlines about private credit over the last year, it's great that StepStone has this private credit suite of benchmarks with Kroll that's pulling from over 15,000 unique loans, not from funds. We're able to really slice and dice the credit quality and the risk factors associated within private credit in partnership with Kroll. We think that that suite of private credit indices and benchmarking tools will also see a lot of adoption over the coming years. This past month, we announced a partnership with PitchBook. What's really unique about PitchBook is, for the first time, StepStone is making its deal-level data available for analytical purposes. Specifically, the TAM or the market that the PitchBook StepStone partnership is addressing, which has been otherwise unaddressed, is the general partner universe. Most of the FTSE Russell and some Kroll, but mostly the FTSE Russell are LP-subscribed users. Here, we're going to have GP-subscribed users looking to figure out how they can differentiate their track record at the deal level, how they can pitch their story as they're out fundraising, and use these analytical tools that StepStone's going to enable them to use at the deal level. We now have three partnerships that address all the private markets as well as the entire ecosystem of LPs, service providers, and GPs. Great. Why don't we shift gears and talk about secondaries? There's been a fair amount of attention by the media, the investor community around day-one markups in secondaries. What do investors, in your view, continue to misunderstand about the discount capture versus actual value creation, and why is this practice appropriate in retail vehicles, in your view? Thanks, Mike. As probably many of you heard on not just our prepared remarks in our last earnings call, but also in the Q&A section, I think the biggest misunderstanding is that there are two numbers that are causing some confusion. The 1st number is when a secondary buyer acquires an asset, the value that they report is the value that the general partner is holding on their books as a fair market value, and that fair market value is done in accordance with GAAP. The second number is the price that they paid for that. It's a fractional interest, sometimes some 1% interest in a much larger pool of assets. There's a difference between the purchase price that's paid for a fractional interest and the fair market value that the general partner is holding on their books. Those are two different numbers. They answer two different questions. Oftentimes, the purchase price can be less than the fair market value, it's a discount. There's a gain between the price that's paid and the value that's been reported, and that creates this day-one markup. That's been how the secondary market has been working since its inception. The seller who's selling the asset is motivated either because of liquidity needs. They're just actively managing their portfolio. It could be a competitive situation. There could be friction in terms of price. There's a number of different reasons why the price is going to differ from the value. We're hoping that some of this confusion gets cleared up. I don't think the secondary industry is saying we've created some magical value on day one. They're saying, "No, we have a negotiated price based on a seller's situation that's different than the value the GP is reporting." I think the real concern here is in the evergreen structures out there, just because it's an unrealized gain doesn't make it unreal, and in some cases, there's a performance fee that's coming from this unrealized gain. I think that's a fair concern in some cases. I think as we look at StepStone's products, in all but one, there is no performance fee, and the only performance fee that's associated with an unrealized gain is our venture product called SPRING. That's what led us to disclose and be very transparent about what the sources of value are coming from. When we unpack the 33% return or 38% return that SPRING created over the last year, 33 percentage points of those 38 percentage gains came from growth in the asset, and a small fraction came from the buy in the form of a discount. That same analysis was disclosed on our SPRIM Evergreen vehicle, where we posted an 11% return, of which nine percentage points came from growth and just a couple percentage points came from the buy as the discount. Our strategy, our philosophy as a firm and a secondary investor is we buy great assets at a fair price. We're not looking to buy fair assets at a great price. I've been in this industry my entire career, you get what you pay for in the secondary market. There is no free lunch. The difference between value and price is, I think, what's causing some of the confusion, Mike. Great. Why don't we talk about venture, which has become a more visible differentiator for StepStone, particularly through SPRING. StepStone's been very active in venture secondaries, where lack of generally IPOs over recent years and strategic exits have created a large liquidity overhang on the industry. How do you underwrite the market today? What have you learned about separating forced sellers with maybe good assets from forced sellers with structurally impaired assets? How has the opportunity set evolved here with AI? Yeah, look, I think, one, that source of differentiation on the venture side and with venture secondaries really started with the Greenspring Associates acquisition that we did back in 2021. One of the comments that I have been making, really since that acquisition, is that one of the things our venture team does such a good job of is developing a view on which venture-backed assets they want to own, and then finding creative ways to acquire access to those companies at the most attractive price and valuation possible. To your question around how do you differentiate between forced sellers with high-quality assets and forced sellers with impaired assets, well, I think showing up with a prepared mind and knowing the assets you want to own, as opposed to being reactive and trying to figure out each time an opportunity comes to market, whether it's a high-quality or an impaired asset, I think that's a big part of our advantage. The proactive nature with which our team operates, I think is a big part of our success. The other part is, and I think this is true of each of our asset classes, one of the reasons that rather than simply tap a private equity professional internally to go have them build out the infrastructure business or the venture business over time was we recognize there are differences across asset classes and in terms of how you make money in each asset class. In venture, the power law is real, where we've seen over the last decade, something like 50% of the value creation has come from about 100 different companies. Even more important that you are focused on trying to get access to the right companies and making sure you've got high-quality exposure to those assets in a way that's going to drive your performance over time. When we think about our venture secondary strategy, the mix looks quite a bit different to other asset classes. It's less of an LP-led secondary market. We've done much more in terms of direct secondaries, whether it's been company-led tenders or buying interest from early management teams, or doing strip sales alongside of managers that we are close with. Again, it has been much more about the post-closing growth and value creation as opposed to discount, as Mike just described a moment ago. Great. We're just about up on time. Final question. If we look out over the next few years, what do you think becomes the next biggest incremental growth driver for StepStone? Where do you think the white space is greatest today? Yeah. The thing that gives me the most comfort is not one thing, right? We talked about the diversification of the business. I made the comment earlier that any given quarter, it's been a different asset class or strategy or product that's been driving that growth. That said, when we look back over our close to 20-year history now, there have been a number of key strategic decisions that we have made that have positioned us well for growth internationally, growth across the non-private equity asset classes, growth in separate accounts and with customized solutions. Most recently, growth in the private wealth space. When you ask that question, I mean, hard not to point to the retirement opportunity as one that is very large, under-allocated, and under-penetrated today, where difficult to put an exact timeline on it, but certainly an opportunity that we're excited about, and as you referenced in your question earlier, one that we're starting to put real resources behind here. Great. Well, I'm afraid we're out of time. Please join me in thanking Scott and Mike. Thank you.