[Management View]
StepStone Group reported a GAAP net loss of $366 million due to the repricing of private wealth profits interests. Despite this, core business performance showed growth across fee revenues, adjusted net income, asset inflows, and platform expansion. Management emphasized robust private wealth inflows, major product launches like STEPEX, and onboarding new institutional mandates. Strategic initiatives included launching proprietary indices with Kroll and FTSE, expanding distribution partners, and establishing international offices to support global client acquisition.

[Outlook]
Management expects STEPEX's initial surge in subscriptions to moderate, with ongoing growth anticipated from private wealth inflows. Fee-earning AUM rose nearly $6 billion in the quarter, with a combined total of fee-earning and undeployed capital reaching $163 billion. Advisory fees normalized to $16 million, reflecting reduced project-based revenue. Upcoming G&A expense increases are expected due to major company conferences and continued infrastructure investment for business growth.

[Financial Performance]
Fee-related earnings (FRE) reached $79 million, up 9%, with a FRE margin of 36%. Adjusted net income was $66.7 million, or $0.54 per share, up from $53.6 million and $0.45 per share. Fee revenues were $217 million, up 17%; excluding retroactive fees, fee revenues grew by 27%. Net accrued carry was $842 million, up 8% sequentially, indicating maturity for harvesting.

[Q&A Highlights]
Question 1: What drove the strong demand for the recently launched StepX, and is there a risk of cannibalization with existing products?
Answer: StepX's traction was driven by demand from channel partners for PE exclusive exposure and ticker availability. Some rotation from prime to StepX was anticipated and has mostly occurred.

Question 2: How do you plan to broaden and deepen distribution among your 650 partners, and what is the potential for selling all five flagship products?
Answer: 50% of partners with over a year on the platform sell more than one product. There's room to expand, especially among larger partners focused on two or three funds.

Question 3: Will the strong initial subscription rate for StepX affect overall SPW subscriptions, and what drove the G&A expense increase?
Answer: StepX's initial $750 million subscriptions are not expected to be the ongoing run rate, leading to a quarterly pullback. G&A expenses rose due to travel, IT, and general operating costs, with further increases expected from upcoming conferences.

Question 4: Can you elaborate on the partnership with Aviva and potential opportunities in the retirement channel outside the U.S.?
Answer: Aviva is a top player in the UK defined contribution market, with material flows expected in calendar '26. Conversations are ongoing in geographies conducive to private markets in defined contribution spaces.

Question 5: How do you plan to monetize the newly launched indices, and what are the next steps?
Answer: Initial revenue from indices will come from licensing opportunities with FTSE Russell. Long-term asset management products around these indices are a potential future opportunity.

Question 6: How are you expanding deal sourcing capabilities to manage capital growth without compromising returns?
Answer: StepStone maintains a balanced approach across primary fund commitments, co-investments, and secondaries, ensuring sufficient deal flow to maintain selective ratios.

Question 7: What is the expected evolution of your product set in the private wealth channel over the next 12-24 months?
Answer: Current products will remain, with a focus on distribution. Models and technology innovations are being explored to integrate private markets robustly.

Question 8: Are there geographical areas of strength or strategy preferences among regions?
Answer: Growth is broad-based across regions, with notable interest in private credit from Asia and the Middle East, where asset owners are establishing new allocations.

[Sentiment Analysis]
Analysts showed interest in the company's strategic initiatives and expansion plans, with a positive tone towards the growth in private wealth and institutional mandates. Management was confident in their strategic direction and the potential for future growth.

[Quarterly Comparison]
| Metric | Q2 2026 | Q2 2025 |
|--------|---------|---------|
| GAAP Net Loss | $366M | N/A |
| Fee-Related Earnings | $79M | N/A |
| Adjusted Net Income | $66.7M | $53.6M |
| Fee Revenues | $217M | N/A |
| Net Accrued Carry | $842M | N/A |

[Risks and Concerns]
The GAAP net loss was significantly larger than prior periods due to the accounting treatment of private wealth profits interests. Retroactive fees contributed minimally to revenue, impacting fee-related earnings. G&A expenses are expected to remain elevated due to conferences and investments.

[Final Takeaway]
StepStone Group's Q2 2026 earnings call highlighted strong growth in private wealth inflows and strategic expansion initiatives, despite a GAAP net loss. The company is focused on leveraging its proprietary indices and expanding its global presence to drive future growth. Analysts were optimistic about the company's strategic direction, with management confident in their ability to navigate upcoming challenges and capitalize on opportunities in the private wealth and institutional markets.