Executive Summary
StepStone Group (STEP) reported a strong QQ2 2025 despite a generally slower realizations environment in private markets. GAAP net income of $53.1 million and adjusted earnings per share of $0.45 signaling solid profitability alongside a record level of fee-related earnings (FRE) of $72.3 million, representing a 65% year-over-year increase and a FRE margin of 39%. Excluding retroactive fees, core FRE margins were 34%, marking the best quarterly/core margin levels across recent periods. The quarter underscored durable growth in fee-earning AUM, with fee-earning assets rising by $4.0 billion sequentially to $134 billion and undeployed fee-earning capital (UFEC) near $30 billion. The company continues to leverage scale across its asset classes, particularly private wealth, private equity secondaries, and evergreen funds, to drive operating leverage and margin expansion even as it deploys capital over multi-year horizons.
Key Performance Indicators
QoQ: 32.29% | YoY:-32.77%
QoQ: 30.00% | YoY:-38.10%
Key Insights
Revenue: $271.677 million (FY-to-date QQ2 2025) vs prior-year period; YoY revenue growth 41.93% and QoQ growth 45.75%. Gross profit: $101.042 million; gross margin 37.19%. Operating income: $50.981 million; operating margin 18.77%. Net income: $17.632 million; net income margin 6.49%. Diluted EPS: $0.26; basic EPS $0.26; weighted-average shares outstanding: 68.772 million (basic) / 69.695 million (diluted). FRE: $72.3 million; FRE margin 39% (core margin ex retroactive fees ~34%). Revenue mix hi...
Financial Highlights
Revenue: $271.677 million (FY-to-date QQ2 2025) vs prior-year period; YoY revenue growth 41.93% and QoQ growth 45.75%. Gross profit: $101.042 million; gross margin 37.19%. Operating income: $50.981 million; operating margin 18.77%. Net income: $17.632 million; net income margin 6.49%. Diluted EPS: $0.26; basic EPS $0.26; weighted-average shares outstanding: 68.772 million (basic) / 69.695 million (diluted). FRE: $72.3 million; FRE margin 39% (core margin ex retroactive fees ~34%). Revenue mix highlights: management and advisory fees $185 million (up 30% YoY). Net accretive effects from retroactive fees: $14.9 million during the quarter. AUM highlights: fee-earning AUM and UFEC combined reached $134 billion; UFEC balance ~$30 billion; private wealth platform >$5 billion. Cash flow: operating cash flow $53.696 million; free cash flow $52.402 million. Balance sheet: total assets $4.0399 billion; total liabilities $2.0396 billion; total stockholders’ equity $397.459 million; total debt $288.513 million; net debt $63.895 million. Liquidity and capital management: cash at period-end $225.381 million; revolver refinanced with $175 million private debt issue at 5.52% for five years to term out revolver and reduce interest expense by ~200 bps annually. Dividend/incentive considerations: expect seasonal incentives related to SPRING Private Wealth Fund; potential supplemental dividend discussed (historical ~$0.15 per share in prior year).
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
271.68M |
41.93% |
45.75% |
| Gross Profit |
101.04M |
2.33% |
-5.87% |
| Operating Income |
50.98M |
-16.56% |
8.12% |
| Net Income |
17.63M |
-32.77% |
32.29% |
| EPS |
0.26 |
-38.10% |
30.00% |
Key Financial Ratios
operatingProfitMargin
18.8%
operatingCashFlowPerShare
$0.78
freeCashFlowPerShare
$0.76
dividendPayoutRatio
92.5%
Management Commentary
Themes and quotes from management:
- Platform momentum and scale: Scott Hart emphasized fundraising milestones and multiyear growth in AUM, e.g., “We closed the fifth vintage of our private equity secondaries fund, at a total fund size of $4.8 billion, our largest commingled fund to date.” and “fee-earning AUM grew by $4 billion and gross AUM inflows were nearly $6 billion across the StepStone platform.”
- Margin strength and leverage: Seth Weiss highlighted FRE margin of 39% and core FRE margin of 34% when retroactive fees are excluded, noting this as a record level and a function of operating leverage and growth in fee-earning AUM.
- Private wealth growth: Scott noted nearly $850 million in private wealth subscriptions and a private wealth platform surpassing $5 billion in NAV; Mike emphasized that private wealth is contributing to margin expansion and top-line growth.
- Realizations and liquidity: The team discussed a muted realized‑fee environment but improving liquidity over time, with expectations that liquidity will trend up as macro conditions normalize and secondary markets expand (e.g., continuation vehicles, partial asset sales, dividend recapitalizations).
- Activations and deployment: Management flagged the activation of over $4 billion of capital from managed accounts by year-end and noted approximately $1.5 billion of deployed UFEC in the quarter, guiding to a 3–5 year deployment horizon overall.
- Balance sheet and debt management: David Park highlighted a private debt issuance of $175 million at 5.52% to term out revolver debt and reduce interest expense by about 200 basis points per year; revolver remains as a liquidity tool.
- Outlook and LP/GP demand: Scott and Mike commented on sustained demand for private markets solutions, with LPs/GPs increasingly relying on secondaries and continued investment in private markets given strategic importance and diversification benefits.
- M&A and platform strategy: Mike McCabe and Scott emphasized that small but targeted acquisitions and buy-ins (e.g., NCI integration) will continue to support platform breadth; Greenspring acquisition previously scaled venture capital capabilities, and future M&A remains accretive to platform growth.
"We generated fee-related earnings of $72.3 million, up 65% from the prior year quarter and we generated an FRE margin of 39%. The quarter reflected retroactive fees..."
— Seth Weiss
"We closed the fifth vintage of our private equity secondaries fund, at a total fund size of $4.8 billion, our largest commingled fund to date. We generated nearly $850 million in private wealth subscriptions and surpassed $5 billion in net asset value in our private wealth platform."
— Scott Hart
Forward Guidance
Management maintains a constructive, multi-year growth outlook anchored in platform scale and diversified fee-earning assets. Key points:
- Seasonal and performance-based incentives: Expect seasonal incentives in fiscal Q3 primarily tied to the SPRING Private Wealth Fund, likely larger than prior-year incentives given fund growth.
- Realizations and liquidity: Liquidity in private markets is expected to trend higher in the coming periods as M&A and IPO activity resumes; however, the path may not be linear, with continued reliance on secondaries and continuation vehicles as liquidity tools.
- Deployment horizon: UFEC deployment remains a multi-year cadence (guided 3–5 years), with approximately $4–6 billion annual deployment potential once activated, aided by $30 billion UFEC and a robust private wealth channel.
- Margin trajectory: Core FRE margins of ~34% are a reasonable baseline; the company will likely incur incremental operating expense (headcount and G&A) as it hires for growth. Retroactive fees will continue to contribute to FRE margins in the near term but may be lumpy.
- Capital structure: Ongoing use of debt instruments to optimize cost of capital (e.g., 5.52% senior notes) while preserving revolver liquidity to support opportunistic investments and risk management.
- Key factors investors should monitor: realized/partial realizations pace, LP/GP fundraising environment, private wealth flow dynamics, UFEC deployment timing, regulatory developments affecting private markets access (notably in defined contribution channels), and the progression of new asset classes toward scale (infrastructure, real estate, credit).