EPS of $-2.61 decreased by 715.6% from previous year
Gross margin of 50.3%
Net income of -192.02M
"It was a standout quarter for both fee-related earnings and fee-related asset growth. We generated fee-related earnings of $74 million, our highest level ever, and increased our fee-earning assets under management by nearly $10 billion, which is the strongest quarter of organic growth in StepStone's history." - Scott Hart
StepStone Group Inc (STEP) Q3 2025 Results Analysis: Record Fee-Related Earnings, Robust AUM Growth, and GAAP Net Loss Driven by Private Wealth Earn-In Accounting
Executive Summary
StepStone Group reported a quarter marked by strong operating fundamentals and material GAAP accounting distortions. On a reported basis, QQ3 2025 delivered a GAAP net loss of $287 million, or $2.61 per share, driven by a non-cash change in fair value related to the potential buy-in of the StepStone Private Wealth profits interests. Excluding this item, adjusted results were positive: adjusted net income of $52.7 million and earnings per share of $0.44, led by growth in fee-related earnings (FRE) and higher net realized performance fees. Management emphasized the strength of core business momentum, including record FRE of $74.1 million (up 46% YoY) and FRE margin of 39%, as well as a robust rise in fee-earning AUM to over $114 billion (up ~28% YoY), with total fee-earning assets plus undeployed fee-earning capital (UFEC) at roughly $136 billion, up ~23% YoY.
Key drivers of the quarter included broad-based AUM growth across structures, deployment of UFEC (over $6.5 billion activated in the quarter, with more than $2 billion deployed), and notable private wealth and infrastructure milestones. The inaugural $1.2 billion infrastructure co-investment fund and private wealth platform expansion to over $7 billion (including a $600 million CredX secondary transaction) were highlighted as meaningful demand indicators and proof points of diversification success. Management stressed that the strong quarterly results reflect a longer-term, diversified growth trajectory rather than a single-quarter phenomenon and cited a healthy pipeline across SMAs, commingled funds, and private wealth investments.
Looking forward, StepStone reiterated a constructive long-run outlook: continued growth in fee-earning AUM, ongoing activation of UFEC, and continued cross-sell across platforms. While no formal FY23/24 guidance was provided, management articulated optimism around margin expansion on a trailing twelve-month basis and the potential for NII accretion from wealth-related buy-ins, even as GAAP results may remain volatile due to accounting treatment of wealth-related earn-outs and similar items.
Key Performance Indicators
Revenue
339.02M
QoQ: 24.79% | YoY:2 420.17%
Gross Profit
170.47M
50.28% margin
QoQ: 68.71% | YoY:503.04%
Operating Income
-339.26M
QoQ: -765.45% | YoY:-904.75%
Net Income
-192.02M
QoQ: -1 189.01% | YoY:-849.35%
EPS
-2.61
QoQ: -1 103.85% | YoY:-715.63%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $339.0 million; YoY growth not disclosed in the press release, QoQ increase reflected in quarterly cadence.
Net Income: $(192.0) million; net margin (−0.57)%; notable due to non-cash GAAP items.
EPS (GAAP): $(2.61); EPS Diluted: $(2.61).
Financial Highlights
Selected QQ3 2025 metrics and QoQ/YoY context:
- Revenue: $339.0 million; YoY growth not disclosed in the press release, QoQ increase reflected in quarterly cadence.
- Gross Profit: $170.5 million; gross margin 50.28%.
- Operating Income: $(339.3) million; operating margin (−1.00)%.
- Net Income: $(192.0) million; net margin (−0.57)%; notable due to non-cash GAAP items.
- EPS (GAAP): $(2.61); EPS Diluted: $(2.61).
- Adjusted Net Income: $52.7 million; Adjusted EPS: $0.44.
- Fee-Related Earnings (FRE): $74.1 million; FRE margin 39% (core FRE margin excluding retroactive fees was 36%).
- Management & Advisory Fees: $192.0 million (up ~26% YoY).
- Fee-Earning AUM: >$114 billion; total fee-earning assets plus UFEC: ~$136 billion (up ~23% YoY).
- UFEC balance: ~$22 billion (down from nearly $30B prior quarter due to activations).
- Deployments and Activations: >$2.0 billion deployed; $6.5 billion activated in the quarter.
- Cash flow: Net cash provided by operating activities $27.6 million; Free cash flow $27.0 million; Cash at period-end $279.5 million.
- Balance Sheet: Cash & equivalents $223.1 million; Total assets $4.345 billion; Net accrued carry $744 million; Net debt $2.333 million; Unfunded commitments $116 million.
- Notable liquidity/earn-out items: GreenSpring earn-out accrued at $75 million and payable in cash; wealth management–related fair value adjustments contributed to GAAP net loss but are not expected to affect adjusted earnings over time.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
339.02M
2 420.17%
24.79%
Gross Profit
170.47M
503.04%
68.71%
Operating Income
-339.26M
-904.75%
-765.45%
Net Income
-192.02M
-849.35%
-1 189.01%
EPS
-2.61
-715.63%
-1 103.85%
Key Financial Ratios
currentRatio
1.18
grossProfitMargin
50.3%
operatingProfitMargin
-100.1%
netProfitMargin
-56.6%
returnOnAssets
-4.41%
returnOnEquity
-91.5%
debtEquityRatio
1.34
operatingCashFlowPerShare
$0.37
freeCashFlowPerShare
$0.37
dividendPayoutRatio
-9.1%
priceToBookRatio
20.32
priceEarningsRatio
-5.55
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management discussion highlights by themes:
- Strategy and growth framework: Scott Hart emphasized diversification and long-term growth with a flexible, multi-structure platform across geographies and asset classes, noting that FRE margin strength and AUM growth underpin shareholder value. Quote: We generated fee-related earnings of $74 million, our highest level ever, and increased our fee-earning assets under management by nearly $10 billion, which is the strongest quarter of organic growth in StepStone's history.
- Private wealth and wealth-management monetization: Jason Ment outlined progress building the syndicate, cross-selling across platforms, and the increasing relevance of ticker-eligible funds (S Prime, CredX, STRUX). He highlighted CredX’s $600 million NAV addition in January and reinforced the multi-platform strategy to accelerate future fundraising. Quote: CredX secondary transaction added over $600 million of NAV to the fund in January, and we are excited about scaling the fund across more platforms.
- Market backdrop and secondaries: Ment described a very active secondary market in 2024 with rising market pricing and expanding GP-led/asset-class secondary activity, underscoring StepStone’s exposure to a favorable secondary cycle. Quote: 2024 set another new record across LP and GP-led secondaries; pricing ticked up, with buyout NAV in the low-to-mid 90s% and venture-like discounts of 70-80% of NAV.
- Deployment momentum and pipeline: Hart and Mike McCabe noted broad-based deployment across asset classes, with over $2B deployed in the quarter and a continued pipeline for SMAs and commingled funds. He also highlighted the ongoing high-quality inflows into private wealth products (S Prime, Spring) and the ongoing development of new vintages. Quote: We deployed over $2 billion of capital and activated over $6.5 billion of capital this quarter.
- Accounting and GAAP dynamics: David Park explained the GAAP net loss was driven by a change in fair value related to potential buy-in of the private wealth profits interests, with adjustments to NII and core FRE margins remaining favorable on a trailing basis. Quote: GAAP accounting requires us to present a change in fair value of the potential buy-in... this may continue to create variability in our GAAP results until the put-call is exercised but will not impact our adjusted net income.
It was a standout quarter for both fee-related earnings and fee-related asset growth. We generated fee-related earnings of $74 million, our highest level ever, and increased our fee-earning assets under management by nearly $10 billion, which is the strongest quarter of organic growth in StepStone's history.
— Scott Hart
The CredX secondary transaction added over $600 million of NAV to the fund in January. We are excited about that fund scaling up and now being of relevant size for more platforms that will make cross-sell and new platforms a bit easier, for sure.
— Jason Ment
Forward Guidance
Outlook and factors for investors to monitor:
- Revenue/margin trajectory: Management highlighted that trailing twelve-month FRE margins have risen meaningfully (36% core FRE margin ex retroactive fees; 39% including retroactive fees) and anticipates continued margin expansion over time as AUM and UFEC activations translate into recurring fees. Monitor the pace of UFEC activation and the level of realized (and potential) performance fees, particularly in Spring and CredX.
- AUM and fundraising pipeline: The company described a strong, diversified pipeline across SMAs, commingled funds, and private wealth products (STRUX, CredX, S Prime, Spring). Investors should watch for final closes on the real estate secondaries fund and multi-strategy growth equity fund in the next quarters and the continued growth of a multi-asset platform capable of cross-selling.
- Private wealth earn-ins and GAAP volatility: Expect ongoing GAAP variability from wealth-management-related earn-ins, though these are accretive to NII per share once exercised; track the timing of put/call events and their impact on non-GAAP vs GAAP results.
- Market and regulatory environment: Ongoing interest in public-private convergence and retirement space dynamics could create new distribution channels and product solutions. The company notes no mandatory regulatory action is required for private markets in retirement, but favorable policy developments could accelerate adoption.
- Key catalysts: CredX scale and platform eligibility, real assets deployment and fundraising, continued growth of private wealth platforms, and active secondaries opportunities across LP/GP-led deals across asset classes.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
STEP Focus
50.28%
-1.00%
-91.50%
-5.55%
MVF
1.00%
89.30%
1.19%
17.81%
MQY
0.00%
0.00%
0.00%
0.00%
FOCS
40.50%
15.40%
2.76%
17.67%
FHI
66.70%
27.40%
7.73%
8.63%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
StepStone is positioned for durable long-term growth through a diversified, multi-asset class platform that benefits from rising demand for private markets, robust fundraising, and increasing cross-sell across channels. The combination of record FRE, growing fee-earning AUM, and scale in private wealth and infrastructure signals attractive unit economics and earnings quality over time, despite near-term GAAP volatility. Key optionality resides in the CredX/Credit-oriented strategies, real assets deployments, and ongoing expansion into wealth-based products that can generate compounding fee-related growth. Investors should monitor the pace of UFEC activation and real asset fund closings, as well as the timing of wealth-related earn-ins and their effects on GAAP earnings versus adjusted earnings. Overall, the stock should be valued on cash flow quality and long-run margin expansion rather than quarterly GAAP fluctuations, with a favorable bias toward secular tailwinds in private markets and asset diversification.
Key Investment Factors
Growth Potential
Strong growth trajectory supported by record FRE, expanding fee-earning AUM, and a broad product menu across private credit, infrastructure, real estate secondaries, venture, and private wealth. The CredX realignment and 1.2B inaugural infrastructure co-investment fund demonstrate scale-up potential and platform effects that can enhance cross-selling and platform reach.
Profitability Risk
Near-term GAAP earnings volatility from wealth-management earn-ins; dependence on retroactive fees for some margin and revenue variability; sensitivity to private markets cyclicality and private equity fundraising conditions; regulatory and policy developments in retirement could alter product feasibility and demand; competition from large-cap alternative asset managers with deeper pockets and broader distribution.
Financial Position
Solid liquidity with $279.5 million cash; modest net debt ($2.33 million) against a total asset base of ~$4.35 billion; net accrued carry $744 million indicates sizeable potential future performance fees; unfunded commitments of $116 million; strong operating cash flow generation ($27.6 million in operating cash flow) supports ongoing investments and potential buybacks.
SWOT Analysis
Strengths
Diversified product platform across private equity, real assets, private credit, real estate secondaries, and private wealth with global reach.
Record FRE and FRE margin, reflecting improving fee-related revenue quality.
Strong AUM momentum: fee-earning AUM >$114B; UFEC ~ $22B; total related assets ~ $136B.
Major milestones: inaugural $1.2B infrastructure co-investment fund; CredX secondary transaction enhancing scale and diversification.
Healthy cross-sell dynamics and ticker-eligible fund adoption (S Prime, STRUX, CredX).
Solid operating cash flow generation and balance sheet liquidity.
Weaknesses
GAAP net loss driven by non-cash fair value accounting on wealth-related earn-ins; potential volatility in reported earnings.
High G&A expense baseline ($529.5M quarterly around) that weighs on GAAP profitability.
Reliance on retroactive fees historically; potential future variability in fee mix.
Opportunities
Growth of public-private convergence products and retirement space adoption without legislative changes.
Expansion of private wealth platform, additional fund vintages, and broader distributor partnerships.
Continued deployment of UFEC and scale advantages across platforms improving economics.
Increased activity in secondaries (LP/GP-led) across asset classes.
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