StepStone Group reported a strong Q3 2026 with Adjusted Net Income of $80 million ($0.65 per share), up from $53 million ($0.44) in the prior year, driven by record Fee-Related Earnings (FRE) of $89 million (up 20% year-over-year). Despite a GAAP net loss of $123 million due to the fair value change of the Private Wealth profit interest buy-in, core operations showed robust health with fee revenues growing 26% to $241 million. The firm achieved its best twelve-month fundraising period ever, generating $34 billion in LTM inflows, which grew Fee-Earning AUM + UFEC to $171 billion. A standout performer was the Spring venture fund, which delivered a 39% return and drove $207 million in incentive fees. Management expressed high confidence heading into 2026, citing a robust pipeline of secondaries and co-investment funds, while emphasizing their diversified exposure to the AI value chain beyond just software.
| Metric | Value | Change |
|---|---|---|
| Fee-Related Earnings (FRE) | $89 million | +20% YoY |
| Core FRE | $88 million | +35% YoY |
| Adjusted Net Income | $80 million | +51% YoY |
| Adjusted EPS | $0.65 | +$0.21 YoY |
| Fee Revenues | $241 million | +26% YoY |
| LTM Fundraising | $34 billion | Record High |
| Fee-Earning AUM + UFEC | $171 billion | +$35 billion YoY |
| Spring Fund Performance | 39% | N/A |
| Blended Management Fee Rate | 63 bps | -2 bps YoY |
StepStone is aggressively positioning itself as a comprehensive AI solutions provider, moving beyond software to invest in the physical infrastructure required for AI build-outs. Management highlighted investments in 'data centers and power generation' through their infrastructure and real estate strategies. This signal indicates a strategic pivot to capture value from the AI theme in a defensive manner, focusing on the 'picks and shovels' rather than just the application layer, which mitigates downside risk if software valuations compress.
The Private Wealth division has become a primary growth engine, reaching $15 billion in AUM with a run-rate of over $2 billion in quarterly subscriptions. Management noted that products like 'S Prime' and 'STEPEX' are 'standouts,' while the 'Spring' venture fund is a 'one-of-a-kind product.' This signal suggests that StepStone is successfully democratizing private market access, creating a sticky, high-margin revenue stream that is less reliant on traditional institutional fundraising cycles.
Fundraising momentum is broad-based and international, with $34 billion raised over the last twelve months—the firm's best period ever. Notably, two-thirds of inflows originated from outside North America, specifically Asia, Europe, and the Middle East. This geographic diversification reduces reliance on any single market and highlights the strength of StepStone's global brand, particularly in infrastructure and private credit where they see an 'extended runway' for growth.
The firm's venture strategy, specifically within the 'Spring' fund, relies heavily on 'direct secondaries' and 'co-invests' rather than traditional LP-led secondary funds or simple mark-ups. Management disclosed that 34% of Spring is primary directs and 64% is secondaries (mostly direct). This strategic focus on direct sourcing allows them to capture the 'power law' in venture and generate high-velocity returns (39% this year), differentiating them from passive allocators.
The reported GAAP net loss of $123 million ($1.55 per share) creates a confusing headline figure for retail investors, driven entirely by the change in fair value of the StepStone Private Wealth profit interest buy-in. While management clarified this is a non-cash accounting item, the volatility in GAAP earnings could obscure underlying profitability trends and potentially spook less sophisticated investors.
Management tempered expectations for upcoming fund vintages, projecting only 'modest growth' despite record fundraising success. They noted that the prior vintages represent $16 billion, and while they are in market with major funds like PE Secondaries and Co-Investment, the explicit guidance of 'modest growth' suggests potential capacity constraints or a conservative approach to deployment in a competitive market.
There is a risk of earnings normalization in the coming year related to the Spring fund's incentive fees. David Park stated that if Spring achieves a 'mid-teens return' next year, incentive fees would 'moderate slightly' compared to this year's exceptional levels. Since Spring contributed $207 million in gross incentive fees this quarter, a normalization could create a tough year-over-year comparison for earnings in FY2027.
The blended management fee rate has compressed to 63 basis points from 65 basis points in the prior fiscal year. While partially offset by a favorable mix shift into higher-rate evergreen funds, the long-term trend of fee compression in private markets remains a structural headwind that could pressure margins as lower-fee assets (like infrastructure or credit) grow faster than higher-fee private equity.
Overall: Management exhibited a highly confident and enthusiastic demeanor throughout the call, frequently using superlatives such as 'best quarter ever' and 'thrilled' to describe performance. They were particularly defensive yet assured regarding the firm's exposure to software and AI disruption, framing their diversification as a competitive advantage. The tone shifted to detailed technical precision during the Q&A when addressing specific portfolio risks, indicating preparedness and deep operational oversight.
Confidence: HIGH - Management used definitive language regarding growth trajectories and fundraising momentum. They provided specific data points to defend their strategy against sector headwinds and offered clear, albeit conservative, forward-looking statements about fund sizing and earnings power.
Expected to 'moderate slightly' next year if performance normalizes to mid-teens returns.
Targeting 'modest growth' for upcoming fund vintages (PE Secondaries, Co-Investment) compared to prior $16 billion vintages.
Expected to be 'seasonally high' in Q4 due to a venture capital conference.
Confident of continued growth as core FRE increases and capital market environment improves.
Hedging & Uncertainty: Management employed specific temporal and probability hedges to set realistic expectations without dampening enthusiasm. Phrases like 'may potentially yield stronger realizations' and 'expect to moderate slightly' were used to discuss future earnings and carry realization. They also used qualifying language regarding fundraising, stating they are 'targeting modest growth' rather than promising continued record-breaking numbers, which serves to lower the bar for future success. However, hedging was minimal regarding past performance, where they used definitive terms like 'best ever' and 'strongest.'
"As a diversified private market solutions provider, we can invest across asset classes and capital structures... putting capital to work in essential components of the AI build-out." - Scott Hart, CEO
"We estimate about 11% of our total AUM that is in software investments... So it really leaves us with within private equity and venture as the main driver of our software exposure." - Scott Hart, CEO
"The amount of opportunities that our venture and growth team continues to see across the innovation economy is strong." - Scott Hart, CEO
"Our retention rate on managed accounts continues to be over 90% with re-ups growing on average by nearly 30%." - Mike McCabe, Head of Strategy
"If we assume Spring's investment performance achieves a mid-teens return, we would expect next year's incentive fees to moderate slightly." - David Park, CFO
Analyst Sentiment: Analysts were highly engaged, focusing heavily on the implications of recent AI market disruptions (specifically software) and the sustainability of the Spring fund's performance. Questions were probing but respectful, seeking to understand risk exposure rather than challenging the results.
Management Responses: Management was exceptionally well-prepared, particularly Scott Hart, who provided detailed, data-driven defenses of the firm's software exposure. They effectively reframed AI risks as an opportunity for their diversified infrastructure and credit strategies. Responses regarding Spring's capacity were reassuring, emphasizing the abundance of deployment opportunities in the private markets.
AI & Software Exposure: Analysts sought to quantify the risk of AI disruption to StepStone's portfolio. Management clarified that only 11% of AUM is in software, with significant exposure to AI infrastructure (power, data centers) acting as a hedge.
Spring Fund Capacity & Performance: Questions focused on whether the fund's rapid growth and 39% return would force them to close or limit inflows. Management insisted they are not capacity constrained and see strong opportunities in direct secondaries.
Fundraising Growth: Analysts asked why expectations were for 'modest growth' given record success. Management explained they are matching fund size to opportunity sets and maintaining discipline.
StepStone Group is executing at a high level, demonstrating the resilience of its diversified, multi-asset private markets model. The firm's record $34 billion in fundraising and 20% organic growth rate prove the durability of its distribution network, particularly in international markets and high-net-worth channels. While the GAAP net loss is a temporary accounting distraction, the underlying fundamentals—core FRE up 35% and ANI up 51%—are robust. The strategic pivot to capture AI value chain opportunities beyond software (infrastructure/power) positions the firm to benefit from the theme while mitigating downside risk. With a massive $33 billion in undeployed capital and a record backlog of accrued carry, earnings visibility remains high. We view the current valuation as attractive given the earnings momentum and growth trajectory.
Management views AI as a net positive for StepStone, driving demand for data centers, power, and compute infrastructure. They are actively investing in these 'essential components' rather than just software applications.
Demand for private market exposure in wealth channels remains 'very strong,' with over $2 billion in quarterly subscriptions, indicating a secular shift toward alternative assets in retail portfolios.
Two-thirds of fundraising came from outside North America, suggesting abundant liquidity in Asia, Europe, and the Middle East, offsetting any potential slowdown in US institutional allocations.
While software faces headwinds, the 'direct secondaries' market in venture remains active. Management noted that companies are staying private longer, creating opportunities for secondary deals and co-invests.