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What changed in StepStone Group Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of StepStone Group Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+599 added−593 removedSource: 10-K (2023-05-26) vs 10-K (2022-05-31)

Top changes in StepStone Group Inc.'s 2023 10-K

599 paragraphs added · 593 removed · 446 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

94 edited+21 added−9 removed125 unchanged
Biggest changeWe developed a responsible investment policy, became a signatory to the United Nations Principles for Responsible Investment (“UNPRI”) in 2013 and created a StepStone Responsible Investment Committee in 2017, and have since become a signatory to the Financial Stability Board Task Force on Climate-Related Financial Disclosures (“TCFD”) as well as a member of the GRESB and the Sustainability Accounting Standards Board (“SASB”).
Biggest changeAs part of our responsible investment journey, we: • Developed a responsible investment policy; • Became a signatory to the United Nations Principles for Responsible Investment (“UNPRI”) in 2013; • Created a StepStone Responsible Investment Committee in 2017; • Became a signatory to the Financial Stability Board Task Force on Climate-Related Financial Disclosures (“TCFD”); • Became a member of the GRESB and the Sustainability Accounting Standards Board (“SASB”); • Implemented a stewardship policy reflecting an emphasis on stewardship practices in our investments; • Developed bespoke responsible investing guidance materials for fund managers across our asset classes; and • Became a signatory to the UK Stewardship Code.
Users also have the ability to edit, run and export various portfolio analytics, including analyzing various return and preference metrics commonly used in the investment industry, such as return J-Curve, cash flow activity over time, multi-period internal rates of return and time-weighted rate of return. 17 Table of Contents Risk Management We have an investment risk management function overseen by our Head of Research and Portfolio Management and our Head of Risk.
Users also have the ability to edit, run and export various portfolio analytics, including analyzing various return and preference metrics commonly used in the investment industry, such as return J-Curve, cash flow activity over time, multi-period internal rates of return and time-weighted rate of return. 17 Table of Contents Investment Risk Management We have an investment risk management function overseen by our Head of Research and Portfolio Management and our Head of Risk.
Key areas where we focus are: • the level of engagement of partner and senior-level management in responsible investment policy and monitoring; • whether or not a fund manager or fund clearly identified a responsible person for designing, executing and implementing its responsible investment policy; • understanding what policy framework the fund manager or fund is adhering to (e.g., UNPRI, TCFD); • the approach to responsible investment training and how the fund manager or fund ensures it is current with best practice; • how the fund manager or investee identifies and manages ESG risks and opportunities including use of external resources; • how the fund manager or investee identifies specific risks concerning modern slavery and human trafficking, particularly in their supply chains; 18 Table of Contents • whether and how the fund manager establishes non-financial impact objectives in addition to financial ones; • how the fund manager assesses and measures non-financial impacts; • how the fund manager or investee explicitly considers climate change with both a risk and return lens; and • how ESG compliance is monitored and reported to various stakeholders.
Key areas where we focus are: • the level of engagement of partner and senior-level management in responsible investment policy and monitoring; 18 Table of Contents • whether or not a fund manager or fund clearly identified a responsible person for designing, executing and implementing its responsible investment policy; • understanding what policy framework the fund manager or fund is adhering to (e.g., UNPRI, TCFD); • the approach to responsible investment training and how the fund manager or fund ensures it is current with best practice; • how the fund manager or investee identifies and manages ESG risks and opportunities including use of external resources; • how the fund manager or investee identifies specific risks concerning modern slavery and human trafficking, particularly in their supply chains; • whether and how the fund manager establishes non-financial impact objectives in addition to financial ones; • how the fund manager assesses and measures non-financial impacts; • how the fund manager or investee explicitly considers climate change with both a risk and return lens; and • how ESG compliance is monitored and reported to various stakeholders.
The Investment Advisers Act imposes substantive regulation on virtually every aspect of our business and our client relationships. Applicable requirements relate to, among other things, fiduciary duties to clients, engaging in transactions with clients, maintaining an effective compliance program, performance fees, solicitation arrangements, allocation of investments, conflicts of interest, marketing, recordkeeping, reporting and disclosure requirements.
The Investment Advisers Act imposes substantive regulation on virtually every aspect of our business and our client relationships. Applicable requirements relate to, among other things, fiduciary duties to clients, engaging in transactions with clients, maintaining an effective compliance program, performance fees, solicitation arrangements, allocation of investments, conflicts of interest, marketing, recordkeeping, reporting and disclosure.
Diversity & Inclusion We believe that a diverse team and an inclusive environment bring tremendous value to us and our clients and are fundamental to our success. Bringing together individuals with diverse backgrounds, experiences, and perspectives allows us to better serve our clients and investors, and is integral to retaining an engaged and dedicated workforce.
Diversity, Equity and Inclusion We believe that a diverse team and an inclusive environment bring tremendous value to us and our clients and are fundamental to our success. Bringing together individuals with diverse backgrounds, experiences, and perspectives allows us to better serve our clients and investors, and is integral to retaining an engaged and dedicated workforce.
Historically, we have competed principally on the basis of the factors listed below: • global access to private markets investment opportunities through our size, scale, reputation and strong relationships with fund managers; • brand recognition and reputation within the investing community; 24 Table of Contents • performance of investment strategies; • quality of service and duration of client relationships; • data and analytics capabilities; • ability to customize product offerings to client specifications; • transparent organizational structure; • ability to provide cost effective and comprehensive range of services and products; and • clients’ perceptions of our independence and the alignment of our interests with theirs created through our investment in our own products.
Historically, we have competed principally on the basis of the factors listed below: • global access to private markets investment opportunities through our size, scale, reputation and strong relationships with fund managers; • brand recognition and reputation within the investing community; • performance of investment strategies; • quality of service and duration of client relationships; • data and analytics capabilities; 25 Table of Contents • ability to customize product offerings to client specifications; • transparent organizational structure; • ability to provide cost effective and comprehensive range of services and products; and • clients’ perceptions of our independence and the alignment of our interests with theirs created through our investment in our own products.
We refer to these provisions as “clawbacks.” Advisory, Data and Administrative Services Depending on the mandate, advisory, data and administrative services may include one or more of the following for our clients: (i) recurring support of portfolio construction and design; (ii) discrete or project-based due diligence, advice, and investment recommendations; (iii) detailed review of existing private markets investments, including portfolio-level repositioning recommendations where appropriate; (iv) consulting on investment pacing, policies, strategic plans, and asset allocation to investment boards and committees; (v) licensed access to our proprietary data and technology platforms, including SPI and our other proprietary tools; or (vi) administrative services to unaffiliated investment advisors.
We refer to these provisions as “clawbacks.” 24 Table of Contents Advisory, Data and Administrative Services Depending on the mandate, advisory, data and administrative services may include one or more of the following for our clients: (i) recurring support of portfolio construction and design; (ii) discrete or project-based due diligence, advice, and investment recommendations; (iii) detailed review of existing private markets investments, including portfolio-level repositioning recommendations where appropriate; (iv) consulting on investment pacing, policies, strategic plans, and asset allocation to investment boards and committees; (v) licensed access to our proprietary data and technology platforms, including SPI and our other proprietary tools; or (vi) administrative services to unaffiliated investment advisors.
We emphasize integrity, transparency, collaboration, entrepreneurialism, and respect for all, driving how we interact with one another, our clients and investors, sponsors, vendors and service providers, and the community at large. These values are embraced by StepStone’s team and lead to high satisfaction for employees. We measure employee satisfaction and engagement through a variety of surveys throughout the year.
We emphasize integrity, transparency, collaboration, entrepreneurialism, and respect for all, driving how we interact with one another, our clients and investors, sponsors, vendors and service providers, and the community at large. These values are embraced by StepStone’s team and lead to high satisfaction for employees. We measure employee satisfaction and engagement through a variety of surveys.
You can access our filings with the SEC by visiting www.sec.gov or our website https://shareholders.stepstonegroup.com/shareholder-relations. The information on our website is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any other filings we make with the SEC. 30 Table of Contents
You can access our filings with the SEC by visiting www.sec.gov or our website https://shareholders.stepstonegroup.com/shareholder-relations. The information on our website is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any other filings we make with the SEC. 31 Table of Contents
For the year ended March 31, 2022, approximately 60% of our management fees were from SMAs and focused commingled funds with a remaining tenor of seven years or more. We have had a high level of success in retaining our advisory clients with an over 90% retention rate since inception.
For the year ended March 31, 2023, approximately 60% of our management fees were from SMAs and focused commingled funds with a remaining tenor of seven years or more. We have had a high level of success in retaining our advisory clients with an over 90% retention rate since inception.
Our mission statement on why diversity, equity and inclusion matter states: • We believe building and maintaining a diverse, equitable and inclusive culture is not only the “right thing to do,” but is also critical from a business standpoint. • We believe that diversity of backgrounds and perspectives among our employees strengthens our ability to analyze, invest, communicate and deliver on our mission. 19 Table of Contents • We believe fostering an inclusive culture and working environment enables all colleagues to engage and contribute to their fullest potential. • We believe diverse and inclusive perspectives drive better outcomes, and better investment decisions.
Our mission statement on why diversity, equity and inclusion matter states: • We believe building and maintaining a diverse, equitable and inclusive culture is not only the “right thing to do,” but is also critical from a business standpoint. • We believe that diversity of backgrounds and perspectives among our employees strengthens our ability to analyze, invest, communicate and deliver on our mission. • We believe fostering an inclusive culture and working environment enables all colleagues to engage and contribute to their fullest potential. • We believe diverse and inclusive perspectives drive better outcomes, and better investment decisions.
These services include one or more of the following for our clients: (i) recurring support of portfolio construction and design; (ii) discrete or project-based due diligence, advice and investment recommendations; (iii) detailed review of existing private markets investments, including portfolio-level repositioning recommendations where appropriate; (iv) consulting on investment pacing, policies, strategic plans, and asset allocation to investment boards and committees; (v) licensed access to SPI and our other proprietary tools; and (vi) administrative services to unaffiliated investment advisors.
These services include one or more of the following for our clients: (i) recurring support of portfolio construction and design; (ii) discrete or project-based due diligence, advice and investment recommendations; (iii) detailed review of existing private markets investments, including portfolio-level repositioning recommendations where appropriate; (iv) consulting on investment pacing, policies, strategic plans, and asset allocation to investment boards and committees; (v) licensed access to our proprietary data and technology platforms, including SPI and our other proprietary tools; and (vi) administrative services to unaffiliated investment advisors.
For instance, key requirements under Directive (EU) 2019/1160 and Regulation (EU) 2019/1156 on the cross-border distribution of collective investment undertakings will come into effect in EU member states from August 2, 2021. Among other things, this legislation introduces rules regarding the pre-marketing of funds.
For instance, key requirements under Directive (EU) 2019/1160 and Regulation (EU) 2019/1156 on the cross-border distribution of collective investment undertakings have come into effect in EU member states from August 2, 2021. Among other things, this legislation introduces rules regarding the pre-marketing of funds.
If for any reason these rules were to become inapplicable, we could become subject to regulatory action or third-party claims that could have a material adverse effect on our business. Foreign Regulation We provide investment advisory and other services and raise funds in a number of countries and jurisdictions outside the United States.
If for any reason these rules were to become inapplicable, we could become subject to regulatory action or third-party claims that could have a material adverse effect on our business. 27 Table of Contents Foreign Regulation We provide investment advisory and other services and raise funds in a number of countries and jurisdictions outside the United States.
Data presented as of March 31, 2022. AUM/AUA reflects final data for the prior period (December 31, 2021), adjusted for net new client account activity through March 31, 2022. Does not include post-period investment valuation or cash activity.
Data presented as of March 31, 2023. AUM/AUA reflects final data for the prior period (December 31, 2022), adjusted for net new client account activity through March 31, 2023. Does not include post-period investment valuation or cash activity.
At the same time, we believe we have been successful in expanding relationships with our clients, often expanding from advisory relationships to discretionary asset management relationships. Approximately 37% of our clients engage us for both asset management and advisory services.
At the same time, we believe we have been successful in expanding relationships with our clients, often expanding from advisory relationships to discretionary asset management relationships. Approximately 36% of our clients engage us for both asset management and advisory services.
Failure to comply with the requirements of the Investment Advisers Act or the rules and regulations promulgated by the SEC could have a material adverse effect on our business. 25 Table of Contents Our SMAs and focused commingled funds generally are not registered under the Investment Company Act because we only form SMAs for, and offer interests in our focused commingled funds to, persons who we reasonably believe to be “qualified purchasers” as defined in the Investment Company Act.
Failure to comply with the requirements of the Investment Advisers Act or the rules and regulations promulgated by the SEC could have a material adverse effect on our business. 26 Table of Contents Our SMAs and the majority of our focused commingled funds are not registered under the Investment Company Act because we only form SMAs for, and offer interests in our focused commingled funds to, persons who we reasonably believe to be “qualified purchasers” as defined in the Investment Company Act.
As of March 31, 2022, over 480 of our employees have equity interests in us in the form of direct equity interests and/or restricted stock units under our 2020 Long-Term Incentive Plan (“LTIP”), and more than 190 employees are entitled to participate in our carried interest allocations in one or more of the asset classes. 13 Table of Contents Strategic Priorities We aim to leverage our core principles and values that have guided us since inception to continue to grow our business, using the following key strategies: Continue to Grow with Existing Clients Expand existing client mandates .
As of March 31, 2023, over half of our employees have equity interests in us in the form of direct equity interests and/or restricted stock units under our 2020 Long-Term Incentive Plan (“LTIP”), and more than 200 employees are entitled to participate in our carried interest allocations in one or more of the asset classes. 13 Table of Contents Strategic Priorities We aim to leverage our core principles and values that have guided us since inception to continue to grow our business, using the following key strategies: Continue to Grow with Existing Clients Expand existing client mandates .
We have a dedicated Data Science and Engineering team with over 40 members, which manages and continues to develop our SPI and Omni platforms (and our additional proprietary tools built on these platforms) and supports our efforts to be a market leader in an area that is essential to evaluating private markets.
We have a dedicated Data Science and Engineering team with approximately 30 members, which manages and continues to develop our SPI and Omni platforms (and our additional proprietary tools built on these platforms) and supports our efforts to be a market leader in an area that is essential to evaluating private markets.
These benefits accrue to our clients and to us. • Our large and experienced team . Since our inception, we have focused on recruiting and retaining the best talent. As of March 31, 2022, nearly 80 partners led the firm, with an average of nearly 20 years of investment or industry experience.
These benefits accrue to our clients and to us. • Our large and experienced team . Since our inception, we have focused on recruiting and retaining the best talent. As of March 31, 2023, 95 partners led the firm, with an average of nearly 20 years of investment or industry experience.
This further expands our investment opportunities and differentiates us from other co-investors, thereby leading to future opportunities with fund managers. Our co-investment program benefits from the access to fund managers we have through our scale and the approximately 3,700 meetings and calls that we conduct with fund managers on an annual basis.
This further expands our investment opportunities and differentiates us from other co-investors, thereby leading to future opportunities with fund managers. Our co-investment program benefits from the access to fund managers we have through our scale and the approximately 4,900 meetings and calls that we conduct with fund managers on an annual basis.
For the year ended March 31, 2022, no single client contributed more than 6% of our total management and advisory fees, and our top 10 clients, which comprise over 50 separate mandates and commitments to commingled funds, contributed approximately 27% of our total management and advisory fees.
For the year ended March 31, 2023, no single client contributed more than 6% of our total management and advisory fees, and our top 10 clients, which comprise over 50 separate mandates and commitments to commingled funds, contributed approximately 25% of our total management and advisory fees.
In 2017, we developed a global Diversity, Equity & Inclusion Committee comprising senior and mid-level members of our firm across functions and asset classes, to evaluate our current diversity efforts, lead new initiatives to improve diversity, equity and inclusion at our firm, and to continuously improve upon our policies and culture.
In 2017, we developed a global Diversity, Equity & Inclusion Committee comprising senior and mid-level members of our firm across our asset classes and geographies, to evaluate and support our diversity efforts, lead new initiatives to improve diversity, equity and inclusion at our firm, and to continuously improve upon our policies and culture.
SMAs and directly-managed assets represented approximately $79 billion of our AUM as of March 31, 2022. Focused Commingled Funds We organize and manage commingled funds that invest in primary, secondary and co-investment funds managed by third-party managers focused in our areas of expertise.
SMAs and directly-managed assets represented approximately $82 billion of our AUM as of March 31, 2023. Focused Commingled Funds We organize and manage commingled funds that invest in primary, secondary and co-investment funds managed by third-party managers focused in our areas of expertise.
Our focus on offering full-service, customized solutions to our clients is reflected in our business composition. As of March 31, 2022, we had 240 bespoke SMAs and focused commingled funds (including high-net-worth programs).
Our focus on offering full-service, customized solutions to our clients is reflected in our business composition. As of March 31, 2023, we had 279 bespoke SMAs and focused commingled funds (including high-net-worth programs).
During the 12 months ended December 31, 2021, we allocated over $75 billion in capital to private markets on behalf of our clients, excluding legacy funds, feeder funds and research-only, non-advisory services. We have a flexible business model whereby many of our clients engage us for solutions across multiple asset classes and investment strategies.
During the 12 months ended December 31, 2022, we allocated approximately $80 billion in capital to private markets on behalf of our clients, excluding legacy funds, feeder funds and research-only, non-advisory services. We have a flexible business model whereby many of our clients engage us for solutions across multiple asset classes and investment strategies.
With offices in 23 cities across 14 countries on five continents, we have built a global operating platform, organically and via acquisition, with strong local teams that possess valuable regional insights and deep-rooted relationships.
With offices in 25 cities across 15 countries on five continents, we have built a global operating platform, organically and via acquisition, with strong local teams that possess valuable regional insights and deep-rooted relationships.
Omni is used extensively by our approximately 80 person StepStone Portfolio Analytics & Reporting (“SPAR”) team to provide customized portfolio analytics and reporting on the performance of our clients’ investments.
Omni is used extensively by our 105 person StepStone Portfolio Analytics & Reporting (“SPAR”) team to provide customized portfolio analytics and reporting on the performance of our clients’ investments.
Approximately 69% of current accrued carried interest allocations is from StepStone Fund vintages of 2017 or prior.
Approximately 60% of current accrued carried interest allocations is from StepStone Fund vintages of 2017 or prior.
As of March 31, 2022, we had approximately $17 billion of capital not yet deployed across our various investment vehicles, which we expect to generate management fees when invested or activated. Add New Clients Globally Over the past decade, we have invested in and grown both our in-house and third-party distribution networks.
As of March 31, 2023, we had $15.7 billion of capital not yet deployed across our various investment vehicles, which we expect to generate management fees when invested or activated. Add New Clients Globally Over the past decade, we have invested in and grown both our in-house and third-party distribution networks.
The sponsorship program pairs promising mid-level employees, including female and diverse professionals, with one of the firm’s partners as well as an executive coach and is intended to support participants in advancing their professional development and leadership skills. • Partnerships and Outreach – In addition to promoting diversity and inclusion through our own events, such as hosting events encouraging undergraduate female students to pursue careers in finance, we sponsor and partner with several organizations dedicated to making financial services more diverse and inclusive. • Expanded Benefits – We provide benefits such as paid parental leave, parental leave coaching for managers and employees, paying for travel for newborns and caretakers when the employee has business required travel, paid shipping of breast milk, wellness rooms for new parents at our offices and paid volunteer time off. 29 Table of Contents Available Information Our Internet address is www.stepstonegroup.com.
The sponsorship program pairs promising mid-level employees, including female and diverse professionals, with one of the firm’s partners, who serves as a sponsor, as well as an executive coach, and is intended to support participants in advancing their professional development and leadership skills. 30 Table of Contents • Partnerships and Outreach – In addition to promoting diversity and inclusion through our own events, such as hosting events encouraging undergraduate female students to pursue careers in finance, we sponsor and partner with several organizations dedicated to making financial services more diverse and inclusive. • Parental Leave and Benefits – We provide benefits such as paid parental leave, parental leave coaching for managers and employees, paying for travel for newborns and caretakers when the employee has business required travel, paid shipping of breast milk, wellness rooms for new parents at our offices and paid volunteer time off.
Strong Investment Performance Track Record Our track record is a key point of differentiation to our clients. As shown below, we have outperformed the MSCI ACWI Index, calculated on a Direct Alpha Equivalent basis, the benchmark index used for comparison across all of our investment strategies on an inception-to-date basis as of December 31, 2021. See “Part II, Item 7.
Strong Investment Performance Track Record Our track record is a key point of differentiation to our clients. As shown below, we have outperformed the MSCI ACWI Index, the benchmark index used for comparison across all of our investment strategies on an inception-to-date basis as of December 31, 2022. See “Part II, Item 7.
CPRIM is structured to provide 1099 tax reporting instead of K-1s, a single investment instead of recurring capital calls, and potential liquidity in the form of regular, current income. • Attractive track record and deep knowledge and expertise in private markets .
SPRIM and SPRING are structured to provide 1099 tax reporting instead of K-1s, a single investment instead of recurring capital calls, and potential liquidity in the form of regular, current income. • Attractive track record and deep knowledge and expertise in private markets .
Net asset value (“NAV”) data for underlying investments is as of December 31, 2020, as reported by underlying managers up to 115 days following December 31, 2021. When NAV data is not available by 115 days following December 31, 2021, such NAVs are adjusted for cash activity following the last available reported NAV.
Net asset value (“NAV”) data for underlying investments is as of December 31, 2022, as reported by underlying managers up to 114 days following December 31, 2022. When NAV data is not available 114 days following December 31, 2022, such NAVs are adjusted for cash activity following the last available reported NAV.
Mandates for SPAR services typically include licensed access to Omni, our proprietary web-based performance monitoring and reporting solution. Omni allows our clients to customize performance measurement and benchmarking according to their unique specifications. Our advisory relationships comprised $436 billion of our AUA and $12 billion of our AUM as of March 31, 2022.
Mandates for SPAR services typically include licensed access to Omni, our proprietary web-based performance monitoring and reporting solution. Omni allows our clients to customize performance measurement and benchmarking according to their unique specifications. Our advisory relationships comprised $482 billion of our AUA and $13 billion of our AUM as of March 31, 2023.
In many instances, existing clients have increased allocations to additional asset classes and commercial structures and deployed capital across our asset management and advisory services businesses. Our dedicated in-house business development and client relations teams, comprising nearly 100 professionals in offices across 11 countries, maintain an active and transparent dialogue with our diverse and global client base.
In many instances, existing clients have increased allocations to additional asset classes and commercial structures and deployed capital across our asset management and advisory services businesses. Our dedicated in-house business development, marketing and client relations teams, comprising approximately 130 professionals in offices across 12 countries, maintain an active and transparent dialogue with our diverse and global client base.
As of March 31, 2022, we had nearly 100 professionals worldwide dedicated to business development and client relations. Our local business development professionals lead conversations with potential local clients. We believe that geographically and economically diverse U.S. and non-U.S. investors will require a highly bespoke approach and will demand high levels of transparency, governance and reporting.
As of March 31, 2023, we had approximately 130 professionals worldwide dedicated to business development, marketing and client relations. Our local business development professionals lead conversations with potential local clients. We believe that geographically and economically diverse U.S. and non-U.S. investors will require a highly bespoke approach and will demand high levels of transparency, governance and reporting.
SMAs, including directly managed assets, comprised $79 billion of our AUM as of March 31, 2022. • Focused commingled funds . Owned by multiple clients, our focused commingled funds deploy capital in specific asset classes with defined investment strategies. Focused commingled funds comprised $44 billion of our AUM as of March 31, 2022. • Advisory, data and administrative services .
SMAs, including directly managed assets, comprised $82 billion of our AUM as of March 31, 2023. • Focused commingled funds . Owned by multiple clients, our focused commingled funds deploy capital in specific asset classes with defined investment strategies. Focused commingled funds comprised $43 billion of our AUM as of March 31, 2023. • Advisory, data and administrative services .
Advisory relationships comprised $436 billion of our AUA and $12 billion of our AUM as of March 31, 2022. 9 Table of Contents • Portfolio analytics and reporting . We provide clients with tailored reporting packages, including customized performance benchmarks as well as associated compliance, administrative and tax capabilities.
Advisory relationships comprised $482 billion of our AUA and $13 billion of our AUM as of March 31, 2023. 9 Table of Contents • Portfolio analytics and reporting . We provide clients with tailored reporting packages, including customized performance benchmarks as well as associated compliance, administrative and tax capabilities.
Our research professionals utilize this technology to collect and develop qualitative and quantitative perspectives on investment opportunities. 11 Table of Contents • Omni monitors the performance of our clients’ investments and allows users, including our clients, to generate detailed analytics. As of March 31, 2022, Omni tracked detailed information on over 8,000 investments across more than 65,000 underlying portfolio companies.
Our research professionals utilize this technology to collect and develop qualitative and quantitative perspectives on investment opportunities. 11 Table of Contents • Omni monitors the performance of our clients’ investments and allows users, including our clients, to generate detailed analytics. As of March 31, 2023, Omni tracked detailed information on nearly 9,000 investments across more than 85,000 underlying portfolio companies.
We also believe we offer an engaging culture and opportunities for ongoing professional development. We believe that a strong, performance-oriented culture is the foundation for a stable organization that will attract and retain industry-leading talent. We offer our team members the benefit of a collegial, intellectually-challenging environment where they are empowered to exercise their creativity.
We believe that a strong, performance-oriented culture is the foundation for a stable organization that will attract and retain industry-leading talent. We offer our team members the benefit of a collegial, intellectually challenging environment where they are empowered to exercise their creativity.
As such the following efforts have been undertaken: • Engaged a consultant to conduct a comprehensive carbon footprint measurement and analysis and have funded several sustainable development projects and purchased carbon offsets to offset carbon emissions to achieve status as a carbon neutral company since 2019. • Implemented tailored carbon reduction initiatives across our global offices and as part of our vendor due diligence process, by adding specific climate-related queries to help us understand and evaluate vendor environmental efforts such as collecting information on any targets and initiatives in place to minimize or offset emissions and reduce waste. • Introduced a range of initiatives focused on reducing energy, waste and water usage across the firm, including recycling, transitioning to electronic tablets during client and other business meetings and generally encouraging a “paperless” approach where practicable. 20 Table of Contents • Prioritizing selection of highly rated Leadership in Energy and Environmental Design (LEED) or comparable standard in leasing office space.
As such the following efforts have been undertaken: • Engaging a consultant to conduct a comprehensive carbon footprint measurement and analysis and funding several sustainable development projects and purchased carbon offsets to offset carbon emissions to achieve status as a carbon neutral company since 2019. • Implementing tailored carbon reduction initiatives across our global offices and as part of our vendor due diligence process, by adding specific climate-related queries to help us understand and evaluate vendor environmental efforts such as collecting information on any targets and initiatives in place to minimize or offset emissions and reduce waste. • Introducing a range of initiatives focused on reducing energy, waste and water usage across the firm, including recycling, transitioning to electronic tablets during client and other business meetings and generally encouraging a “paperless” approach where practicable. • Prioritizing selection of highly rated Leadership in Energy and Environmental Design (LEED) or comparable standard in leasing office space, and attaining certification as carbon neutral and receiving a five-star energy rating for one of our global offices.
Upside from performance fees As of March 31, 2022, we had approximately 155 investment programs with the potential to earn performance fees, consisting of over $55 billion in committed capital. As of March 31, 2022, our accrued carried interest allocations balance, which we view as a backlog of future carried interest allocation revenue, was $1,481 million.
Upside from performance fees As of March 31, 2023, we had approximately 180 investment programs with the potential to earn performance fees, consisting of over $63 billion in committed capital. As of March 31, 2023, our accrued carried interest allocations balance, which we view as a backlog of future carried interest allocation revenue, was $1,227 million.
Highly predictable with strong visibility into near-term growth Our SMAs and focused commingled funds typically have a 10 to 18-year maturity at inception, including extensions. As of March 31, 2022, we had approximately $17 billion of committed but undeployed fee-earning capital, which we expect to generate management fees when deployed or activated.
Highly predictable with strong visibility into near-term growth Our SMAs and focused commingled funds typically have an eight to 18-year maturity at inception, including extensions. As of March 31, 2023, we had $15.7 billion of committed but undeployed fee-earning capital, which we expect to generate management fees when deployed or activated.
Diverse As of March 31, 2022, we had over 330 revenue-generating asset management and advisory programs and therefore are not dependent upon or concentrated in any single investment vehicle or client.
Diverse As of March 31, 2023, we had nearly 400 revenue-generating asset management and advisory programs and therefore are not dependent upon or concentrated in any single investment vehicle or client.
As of March 31, 2022, nearly 80 partners led the firm, with an average of nearly 20 years of investment or industry experience.
As of March 31, 2023, 95 partners led the firm, with an average of nearly 20 years of investment or industry experience.
Our focused commingled funds invest across a variety of private market strategies, which enables our clients to efficiently participate in these specialized strategies for which they otherwise may not be able to access due to the high minimum investment requirements.
Our focused commingled funds invest across a variety of private market strategies, which enables our clients to efficiently participate in these specialized strategies for which they otherwise may not be able to access due to the high minimum investment requirements. Focused commingled funds represented $43 billion of our AUM as of March 31, 2023.
In some cases, performance fees are charged with respect to appreciation in NAV in excess of an agreed rate of return. 23 Table of Contents If, upon the final distribution of any of our focused commingled funds or SMAs from which we earn performance fees, we or our affiliates have received cumulative performance fees in excess of the amount to which we would be entitled from the profits calculated for such investments in the aggregate, or if the clients have not received distributions equal to those to which they are entitled, we or our affiliates will return such part of any performance fees to the clients as is necessary to ensure that they receive the amounts to which they are entitled, less taxes on the performance fees.
If, upon the final distribution of any of our focused commingled funds or SMAs from which we earn performance fees, we or our affiliates have received cumulative performance fees in excess of the amount to which we would be entitled from the profits calculated for such investments in the aggregate, or if the clients have not received distributions equal to those to which they are entitled, we or our affiliates will return such part of any performance fees to the clients as is necessary to ensure that they receive the amounts to which they are entitled, less taxes on the performance fees.
Our data are organized around our proprietary software systems: • SPI monitors investment opportunities and is used by our investment professionals as an investment decision making tool. As of March 31, 2022, SPI contained information on over 72,000 companies, over $22 trillion of AUM across over 40,000 funds and over 15,000 fund managers showing fund-level performance for nearly 14,000 funds.
Our data are organized around our proprietary software systems: • SPI monitors investment opportunities and is used by our investment professionals as an investment decision making tool. As of March 31, 2023, SPI contained information on over 82,000 companies, over $28 trillion of AUM across over 42,000 funds and over 16,000 fund managers showing fund-level performance for nearly 15,000 funds.
We leverage our SPI database of over 72,000 companies, over $22 trillion of AUM across over 40,000 funds and over 15,000 fund managers showing fund-level performance for nearly 14,000 funds to track a large cross section of fund managers and funds globally—irrespective of fundraising cycles.
We leverage our SPI database of over 82,000 companies, over $28 trillion of AUM across over 42,000 funds and over 16,000 fund managers showing fund-level performance for nearly 15,000 funds to track a large cross section of fund managers and funds globally—irrespective of fundraising cycles.
We participate in co-investments across each of our asset classes. Co-investments are generally structured such that the lead and co-investors collectively hold the same security on the same terms in a controlling interest of the operating company, project or property.
Co-investments are generally structured such that the lead and co-investors collectively hold the same security on the same terms in a controlling interest of the operating company, project or property.
During the year ended March 31, 2022, over 70% of our management and advisory fees came from clients based outside of the United States, reflecting the strength and breadth of our relationships within the global investor community.
During the year ended March 31, 2023, nearly two-thirds of our management and advisory fees came from clients based outside of the United States, reflecting the strength and breadth of our relationships within the global investor community.
As of March 31, 2022, we had over 790 total employees, including over 280 investment professionals and more than 500 employees across our operating team and implementation teams dedicated to sourcing, executing, analyzing and monitoring private markets opportunities. We believe our scale and position in private markets provide us a distinct competitive advantage with our clients and fund managers.
As of March 31, 2023, we had 956 total employees, including 322 investment professionals and 634 employees across our operating team and implementation teams dedicated to sourcing, executing, analyzing and monitoring private markets opportunities. We believe our scale and position in private markets provide us a distinct competitive advantage with our clients and fund managers.
We believe our value proposition as a full-service firm also helps us strengthen and grow our client relationships. As of March 31, 2022, 37% of our advisory clients also had an AUM relationship with us, and we advised or managed assets in more than one asset class for 35% of our clients, supporting our combined AUM/AUA growth.
We believe our value proposition as a full-service firm also helps us strengthen and grow our client relationships. As of March 31, 2023, 36% of our advisory clients also had an AUM relationship with us, and we advised or managed assets in more than one asset class for 34% of our clients, supporting our total capital responsibility growth.
During the year ended March 31, 2022, we reviewed over 3,400 investment opportunities and conducted approximately 3,700 meetings with fund managers across multiple geographies and all four asset classes.
During the year ended March 31, 2023, we reviewed over 3,600 investment opportunities and conducted approximately 4,900 meetings with fund managers across multiple geographies and all four asset classes.
Mandates for portfolio analytics and reporting services typically include licensed access to our proprietary performance monitoring software, Omni. Omni tracked detailed information on over $805 billion of client commitments as of March 31, 2022, inclusive of our combined AUM/AUA, previously exited investments and investments of former clients.
Mandates for portfolio analytics and reporting services typically include licensed access to our proprietary performance monitoring software, Omni. Omni tracked detailed information on over $905 billion of client commitments as of March 31, 2023, inclusive of our total capital responsibility, previously exited investments and investments of former clients.
StepStone’s retention strategy encompasses the entire life cycle of the employee, including our strategic hiring and co mprehensive onboarding processes, ongoing professional development, mentoring and sponsorship programs, our learning and inclusive culture and conducting exit interviews to gain further insights on retention.
StepStone’s retention strategy encompasses the entire life cycle of the employee, including our strategic hiring and co mprehensive onboarding processes, ongoing professional development, mentoring and sponsorship programs, our learning and inclusive culture and conduct of exit interviews to gain further insights on retention. Total Rewards We continuously strive to provide a competitive total rewards package.
Focused commingled funds represented $44 billion of our AUM as of March 31, 2022. 22 Table of Contents Key Terms of SMAs and Focused Commingled Funds Fees Management fees from SMAs are generally based on a contractual rate applied to net invested capital, although specific terms vary significantly from client to client and may be based on capital commitment or NAV.
Key Terms of SMAs and Focused Commingled Funds Fees Management fees from SMAs are generally based on a contractual rate applied to net invested capital, although specific terms vary significantly from client to client and may be based on capital commitment or NAV.
We believe our revenue model has the following important attributes: Sustainable and recurring management and advisory fees Our management and advisory fees grew from $141 million in fiscal 2018 to $380 million in fiscal 2022, representing a 28% compounded annual growth rate (or 24% excluding the Greenspring acquisition).
We believe our revenue model has the following important attributes: Sustainable and recurring management and advisory fees Our management and advisory fees grew from $141 million in fiscal 2018 to $497 million in fiscal 2023, representing a 29% compounded annual growth rate.
We have developed an investment platform, Conversus, designed to expand access to the private markets for private wealth clients. Leverage Our Scale to Enhance Operating Margins Since inception we have made significant investments in our platform infrastructure through building out our investment and implementation teams across geographies and asset classes and developing technology-enabled solutions.
Leverage Our Scale to Enhance Operating Margins Since inception we have made significant investments in our platform infrastructure through building out our investment and implementation teams across geographies and asset classes and developing technology-enabled solutions.
Being an active investor across all investment strategies provides us with meaningful insights into fund managers, their portfolios, return characteristics and direct investment opportunities. Primaries Primaries refer to investments in newly established private markets funds.
StepStone constructs solutions across all three investment strategies for each asset class – private equity, infrastructure, private debt and real estate. Being an active investor across all investment strategies provides us with meaningful insights into fund managers, their portfolios, return characteristics and direct investment opportunities. Primaries Primaries refer to investments in newly established private markets funds.
These portfolios utilize several types of synergistic investment strategies with third-party fund managers, including commitments to funds (“primaries”), acquiring stakes in existing funds on the secondary market (“secondaries”) and investing directly into companies (“co-investments”). As of March 31, 2022, we oversaw $570 billion of private markets allocations, including $134 billion of AUM and $436 billion of AUA.
These portfolios utilize several types of synergistic investment strategies with third-party fund managers, including commitments to funds (“primaries”), acquiring stakes in existing funds on the secondary market (“secondaries”) and investing directly into companies (“co-investments”). As of March 31, 2023, we were responsible for $621 billion of total capital, including $138 billion of AUM and $482 billion of AUA.
For the year ended March 31, 2022, approximately 46% of our management and advisory fees (excluding fund reimbursement revenues) were generated from SMAs, as compared to 39% from focused commingled funds and 15% from advisory, data and administrative services.
For the year ended March 31, 2023, approximately 46% of our management and advisory fees were generated from focused commingled funds, 42% from SMAs, 11% from advisory, data and administrative services and 1% from fund reimbursement revenues.
Our Competitive Strengths Truly Global Scale with Local Teams Since our founding, we have invested significant time and resources building a global platform that we believe is well positioned to benefit from the continued growth and globalization of the private markets. Today, we have investment and implementation professionals in 23 cities across 14 countries on five continents.
Our Competitive Strengths Truly Global Scale with Local Teams Since our founding, we have invested and continue to invest significant time and resources building a global platform that we believe is well positioned to benefit from the continued growth and globalization of the private markets.
However, we expect that the funds we manage on our private wealth platform will be registered investment companies under the Investment Company Act. The Investment Company Act and the rules thereunder contain detailed parameters for the organization and operation of investment companies.
However, certain U.S. funds we manage on our private wealth platform are registered investment companies or business development companies under the Investment Company Act. The Investment Company Act and the rules thereunder contain detailed parameters for the organization and operation of investment companies and business development companies.
Given our global business and client base, we seek to consider candidates from diverse backgrounds, cultures and educational institutions. We strive to maintain hiring practices that are handled with professionalism and responsiveness, in a fair and inclusive selection process. We aspire to have candidates progress within the hiring process with a positive impression of the firm.
We strive to maintain hiring practices that are handled with professionalism and responsiveness, in a fair and inclusive selection process. We aspire to have candidates progress within the hiring process with a positive impression of the firm.
(in billions except percentages and multiples) Strategy Committed Capital Cumulative Invested Capital Realized Distributions NAV Total Multiple of Invested Capital Gross IRR Net IRR Gross IRR versus Benchmark Primaries $ 217.9 $ 147.0 $ 94.4 $ 125.7 $ 220.1 1.5x 13.7 % 13.4 % 2.3 % Secondaries 12.5 9.8 6.1 9.7 15.8 1.6x 24.5 % 20.5 % 10.6 % Co-investments 27.3 24.9 10.4 32.2 42.6 1.7x 21.8 % 19.3 % 6.7 % Total $ 257.7 $ 181.7 $ 110.9 $ 167.6 $ 278.5 1.5x 14.8 % 14.2 % 3.1 % We attribute our strong investment performance track record to numerous factors, including our scale and global reach, our selective investment process powered by our technology and data advantage and our experienced investment teams.
(in billions except percentages and multiples) Strategy Committed Capital Cumulative Invested Capital Realized Distributions NAV Total Gross IRR Net IRR Net Multiple of Invested Capital Net IRR versus Benchmark Primaries $ 273.8 $ 192.0 $ 122.9 $ 153.7 $ 276.6 12.8 % 12.5 % 1.4x 4.7 % Secondaries 17.0 14.2 9.0 12.3 21.3 21.1 % 17.2 % 1.4x 9.3 % Co-investments 40.5 38.1 19.2 42.1 61.3 19.2 % 16.7 % 1.5x 9.1 % Total $ 331.3 $ 244.3 $ 151.1 $ 208.1 $ 359.2 13.8 % 13.2 % 1.4x 5.4 % We attribute our strong investment performance track record to numerous factors, including our scale and global reach, our selective investment process powered by our technology and data advantage and our experienced investment teams.
As of March 31, 2022, approximately 45% of our investment professionals were based outside the United States. We believe our focus on hiring local talent, supported by a deep bench of experienced investment professionals, has been critical in helping us attract a blue-chip, global client base.
We believe our focus on hiring local talent, supported by a deep bench of experienced investment professionals, has been critical in helping us attract a blue-chip, global client base. During the year ended March 31, 2023, nearly two-thirds of our management and advisory fees came from clients based outside of the United States.
Our LTIP provides us the ability to offer a variety of equity-based awards in the future to further incentivize our employees. In February 2022, we granted restricted stock units to approximately 250 of our employees. In addition, we award annually a portion of carried interest allocations earned by us to certain employees.
Our LTIP provides us the ability to offer a variety of equity-based awards in the future to further incentivize our employees. In addition, we award annually a portion of carried interest allocations earned by us to certain employees. We believe we offer an engaging culture and opportunities for ongoing professional development.
We believe investors are reducing the number of fund managers they invest with, increasingly allocating capital to fund managers that have expertise across a wide range of asset classes within private markets. 10 Table of Contents PRIVATE EQUITY REAL ESTATE $76B (1) $40B $228B $11B (1) $5B $149B AUM FEAUM AUA AUM FEAUM AUA 145 50 Investment professionals Investment professionals INFRASTRUCTURE PRIVATE DEBT $26B (1) $18B $44B $22B (1) $12B $15B AUM FEAUM AUA AUM FEAUM AUA 52 36 Investment professionals Investment professionals _____________________________ Note: Amounts may not sum to total due to rounding.
We believe investors are reducing the number of fund managers they invest with, increasingly allocating capital to fund managers that have expertise across a wide range of asset classes within private markets. 10 Table of Contents PRIVATE EQUITY REAL ESTATE $72B (1) $46B $242B $13B (1) $6B $172B AUM FEAUM AUA AUM FEAUM AUA 161 54 Investment professionals Investment professionals INFRASTRUCTURE PRIVATE DEBT $27B (1) $19B $51B $27B (1) $14B $17B AUM FEAUM AUA AUM FEAUM AUA 61 46 Investment professionals Investment professionals _____________________________ Note: Amounts may not sum to total due to rounding.
Our solutions include: • SMAs spanning multiple asset classes and strategies for defined contribution plans with long-term investment objectives; • private wealth solutions for registered investment advisors, independent broker dealers and wirehouses in the United States and wealth managers internationally; • registered funds available to accredited investors in the United States; and • global distribution of our institutional funds to family office investors and high-net-worth investors. 21 Table of Contents In October 2020, Conversus, our investment platform designed to expand access to the private markets for high-net-worth and accredited investors, held the first closing for its inaugural fund Conversus StepStone Private Markets (“CPRIM”), a fund that offers, through a single investment, access to major private markets asset classes in a proportion dynamically allocated by us.
Our solutions include: • SMAs spanning multiple asset classes and strategies for defined contribution plans with long-term investment objectives; • private wealth solutions for registered investment advisors, independent broker dealers and wirehouses in the United States and wealth managers internationally; • registered funds available to accredited investors in the United States; and • global distribution of our institutional funds to family office investors and high-net-worth investors.
Diversity and Inclusion We value diversity among our staff and leadership, recognizing that through diversity, we gain a variety of perspectives, views, and ideas which strengthen our ability to strategize, communicate, and deliver on our mission.
ESG in Our Corporate Operations We are committed to incorporating ESG factors across our operational decision making and internal policies. 19 Table of Contents Diversity, Equity and Inclusion We value diversity among our staff and leadership, recognizing that through diversity, we gain a variety of perspectives, views, and ideas which strengthen our ability to strategize, communicate, and deliver on our mission.
The impact sector is fast-growing and we see developments in this sector that we believe will increasingly allow for the deployment of capital at scale. ESG in Our Corporate Operations We are committed to incorporating ESG factors across our operational decision making and internal policies.
The impact sector is fast-growing and we see developments in this sector that we believe will increasingly allow for the deployment of capital at scale.
In addition to our mentorship program, we have a sponsorship program that includes high performing and high potential mid-career female and diverse professionals and provides them with rigorous developmental tools, 360-degree assessments, education and executive coaching opportunities alongside their sponsor. We have also continuously reviewed and expanded our parental leave policies and related benefits.
In addition to our mentorship program, we have a sponsorship program for high performing and high potential mid-career professionals, with a focus on female and diverse team members, and provides them with rigorous developmental tools, 360-degree assessments, education and executive coaching opportunities alongside sponsorship by one of the firm’s partners.
We have established various initiatives and programs to promote and foster diversity and inclusion within StepStone and the broader financial services community, including: • StepStone Diversity, Equity & Inclusion Committee – The committee was established to promote, monitor and implement our diversity and inclusion strategy, and comprises employees from different asset classes, functions, seniority, geographies, gender and race, ethnicity and national origin. • StepStone Diversity, Equity & Inclusion Network – The network provides opportunities for our employees to learn about various diversity, equity and inclusion matters and initiatives and to meet and talk to experts who are championing these causes. • Mentorship and Sponsorship Programs – The mentorship program provides interested employees with structured access to one of their more senior colleagues who provide guidance and career advice.
The committee also supports the firm’s various employee-led ERGs. • StepStone Diversity, Equity & Inclusion Network – The network provides opportunities for our employees to learn about various diversity, equity and inclusion matters and initiatives and to meet and talk to experts who are championing these causes. • Mentorship and Sponsorship Programs – The mentorship program provides interested employees with structured access to one of their more senior colleagues who provide guidance and career advice.
Failure to maintain compliance with applicable laws and regulations could result in regulatory intervention, adversely affect our business or ability to provide services to our clients and harm our reputation. 26 Table of Contents The European Union Markets in Financial Instruments Directive II (“MiFID II”), which became effective on January 3, 2018, requires, among other things, all MiFID II investment firms to comply with more prescriptive disclosure, transparency, reporting and recordkeeping obligations and enhanced obligations in relation to the receipt of investment research, best execution, product governance and marketing communications.
The European Union Markets in Financial Instruments Directive II (“MiFID II”) requires, among other things, all MiFID II investment firms to comply with more prescriptive disclosure, transparency, reporting and recordkeeping obligations and enhanced obligations in relation to the receipt of investment research, best execution, product governance and marketing communications.
Management fees often decrease over the life of the contract due to built-in declines in contractual rates and/or as a result of lower net invested capital balances as capital is returned to clients.
Management fees often decrease over the life of the contract due to built-in declines in contractual rates and/or as a result of lower net invested capital balances as capital is returned to clients. 23 Table of Contents Duration and Termination SMAs and focused commingled funds are typically eight to 18 years in duration, including extensions, but this varies and may be longer or even indefinite.
Our offices are staffed by investment professionals who bring valuable regional insights and language proficiency to enhance existing client relationships and build new client relationships. Each of our offices follows a local staffing model, with local professionals who possess valuable insights, language proficiency and client relationships specific to that market.
Each of our offices follows a local staffing model, with local professionals who possess valuable insights, language proficiency and client relationships specific to that market. As of March 31, 2023, approximately 45% of our investment professionals were based outside the United States.
There have also been significant legislative developments affecting the private equity industry in Europe and there continues to be discussion regarding enhancing governmental scrutiny and/or increasing regulation of the private equity industry. 27 Table of Contents With the expiration of the Brexit transition period on December 31, 2020, UK regulated entities lost the right to passport their services to EEA countries, and EEA entities lost the right to reciprocal passporting into the UK (subject to a transitional regime).
With the expiration of the Brexit transition period on December 31, 2020, UK regulated entities lost the right to passport their services to EEA countries, and EEA entities lost the right to reciprocal passporting into the UK (subject to a transitional regime).
It is expected that additional laws and regulations will come into force in the UK, the EEA, the EU, and other countries in which we operate over the coming years. Regulation (EU) 2019/2033 on the prudential requirements for investment firms (“IFR”) and Directive (EU) 2019/2034 on the prudential supervision of investment firms (“IFD”) entered into force on December 25, 2019.
Regulation (EU) 2019/2033 on the prudential requirements for investment firms (“IFR”) and Directive (EU) 2019/2034 on the prudential supervision of investment firms (“IFD”) entered into force on December 25, 2019.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeHowever, our amended and restated certificate of incorporation contains provisions that have the same effect as Section 203, except that they provide that the Sunset Holders, their affiliates and their respective successors (other than the Company or any of our subsidiaries), as well as their direct and indirect transferees, will not be deemed to be “interested stockholders,” regardless of the percentage of our voting stock owned by them, and accordingly will not be subject to such restrictions.
Biggest changeHowever, our amended and restated certificate of incorporation contains provisions that have the same effect as Section 203, except that they provide that the Sunset Holders, their affiliates and their respective successors (other than the Company or any of our subsidiaries), as well as their direct and indirect transferees, will not be deemed to be “interested stockholders,” regardless of the percentage of our voting stock owned by them, and accordingly will not be subject to such restrictions. 69 Table of Contents Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, and the federal district courts as the exclusive forum for Securities Act claims, which could limit our stockholders’ ability to obtain what such stockholders believe to be a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our amended and restated certificate of incorporation and bylaws include provisions that: 67 Table of Contents • provide that vacancies on our board of directors shall be filled only by a majority of directors then in office, even though less than a quorum, or by a sole remaining director; • establish that our board of directors is divided into three classes, with each class serving three-year staggered terms, subject to a specified sunset; • provide that our directors can be removed (i) for cause only as long as our board of directors is classified and (ii) following such time as our board of directors is no longer classified, with or without cause, but only upon the affirmative vote of holders of at least 66 2⁄3% of the voting power of the outstanding shares of our capital stock entitled to vote generally in the election of directors; • provide that any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing in lieu of a meeting of such stockholders; • specify that special meetings of our stockholders can be called only by our board of directors or the chairman of our board of directors; • establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; • authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock; and • reflect two classes of common stock, with Class B common stock having five votes per share and Class A common stock having one vote per share, until a Sunset becomes effective, as discussed above.
Our amended and restated certificate of incorporation and bylaws include provisions that: • provide that vacancies on our board of directors shall be filled only by a majority of directors then in office, even though less than a quorum, or by a sole remaining director; • establish that our board of directors is divided into three classes, with each class serving three-year staggered terms, subject to a specified Sunset; 68 Table of Contents • provide that our directors can be removed (i) for cause only as long as our board of directors is classified and (ii) following such time as our board of directors is no longer classified, with or without cause, but only upon the affirmative vote of holders of at least 66 2⁄3% of the voting power of the outstanding shares of our capital stock entitled to vote generally in the election of directors; • provide that any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing in lieu of a meeting of such stockholders; • specify that special meetings of our stockholders can be called only by our board of directors or the chairman of our board of directors; • establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; • authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock; and • reflect two classes of common stock, with Class B common stock having five votes per share and Class A common stock having one vote per share, until a Sunset becomes effective, as discussed above.
Under these rules, a listed company of which more than 50% of the voting power with respect to the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that (i) a majority of our board of directors consist of independent directors, (ii) director nominees be selected or recommended to the board entirely by independent directors and (iii) the compensation committee be composed entirely of independent directors. 59 Table of Contents A “Sunset” is triggered upon the earliest to occur of the following: (i) Monte Brem, Scott Hart, Jason Ment, Jose Fernandez, Johnny Randel, Michael McCabe, Mark Maruszewski, Thomas Keck, Thomas Bradley, David Jeffrey and Darren Friedman (including their respective family trusts and any other permitted transferees, the “Sunset Holders”) collectively cease to maintain direct or indirect beneficial ownership of at least 10% of the outstanding shares of Class A common stock (determined assuming all outstanding Class B units have been exchanged for Class A common stock); (ii) the Sunset Holders cease collectively to maintain direct or indirect beneficial ownership of an aggregate of at least 25% of the aggregate voting power of our outstanding Class A common stock and Class B common stock, before giving effect to a Sunset; and (iii) September 18, 2025.
Under these rules, a listed company of which more than 50% of the voting power with respect to the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that (i) a majority of our board of directors consist of independent directors, (ii) director nominees be selected or recommended to the board entirely by independent directors and (iii) the compensation committee be composed entirely of independent directors. 60 Table of Contents A “Sunset” is triggered upon the earliest to occur of the following: (i) Monte Brem, Scott Hart, Jason Ment, Jose Fernandez, Johnny Randel, Michael McCabe, Mark Maruszewski, Thomas Keck, Thomas Bradley, David Jeffrey and Darren Friedman (including their respective family trusts and any other permitted transferees, the “Sunset Holders”) collectively cease to maintain direct or indirect beneficial ownership of at least 10% of the outstanding shares of Class A common stock (determined assuming all outstanding Class B units have been exchanged for Class A common stock); (ii) the Sunset Holders cease collectively to maintain direct or indirect beneficial ownership of an aggregate of at least 25% of the aggregate voting power of our outstanding Class A common stock and Class B common stock, before giving effect to a Sunset; and (iii) September 18, 2025.
Our tax treatment is subject to the enactment of, or changes in, tax laws, regulations and treaties, or the interpretation thereof, tax policy initiatives and reforms under consideration and the practices of tax authorities in jurisdictions in which we operate, including those related to the Base Erosion and Profit Shifting Project of the Organisation for Economic Co-Operation and Development (“OECD”), the European Commission’s state aid investigations and other initiatives.
Our tax treatment is subject to the enactment of, or changes in, tax laws, regulations and treaties, or the interpretation thereof, tax policy initiatives and reforms under consideration and the practices of tax authorities in jurisdictions in which we operate, including those related to the Base Erosion and Profit Shifting (“BEPS”) Project of the Organisation for Economic Co-Operation and Development (“OECD”), the European Commission’s state aid investigations and other initiatives.
Cyber-criminals may attempt to redirect payments required to be paid at the closings of our investments to unauthorized accounts, which we or the services providers we retain, such as paying agents and escrow agents, may not be able to detect or protect against. In recent years, there has been a significant increase in ransomware and other hacking attempts by cyber-criminals.
Cyber-criminals can attempt to redirect payments required to be paid at the closings of our investments to unauthorized accounts, which we or the services providers we retain, such as paying agents and escrow agents, may not be able to detect or protect against. In recent years, there has been a significant increase in ransomware and other hacking attempts by cyber-criminals.
The historical investment performance of our funds should not be considered indicative of the future investment performance of these funds or of any future funds we may invest, in part because: • market conditions and investment opportunities may be significantly less favorable than in the past; 31 Table of Contents • the performance of our funds is largely based on the NAV of the funds’ investments, including unrealized gains, which may never be realized; • our newly established funds may generate lower investment returns during the period that they initially deploy their capital; • changes in the global tax and regulatory environment may affect both the investment preferences of our clients and the financing strategies employed by businesses in which particular funds invest, which may reduce the overall capital available for investment and the availability of suitable investments, thereby reducing our investment returns in the future; • competition for investment opportunities, resulting from the increasing amount of capital invested in private markets alternatives, may increase the cost and reduce the availability of suitable investments, thereby reducing our investment returns in the future; and • the industries and businesses in which particular funds invest will vary.
The historical investment performance of our funds should not be considered indicative of the future investment performance of these funds or of any future funds we may invest, in part because: • market conditions and investment opportunities may be significantly less favorable than in the past; 32 Table of Contents • the performance of our funds is largely based on the NAV of the funds’ investments, including unrealized gains, which may never be realized; • our newly established funds may generate lower investment returns during the period that they initially deploy their capital; • changes in the global tax and regulatory environment may affect both the investment preferences of our clients and the financing strategies employed by businesses in which particular funds invest, which may reduce the overall capital available for investment and the availability of suitable investments, thereby reducing our investment returns in the future; • competition for investment opportunities, resulting from the increasing amount of capital invested in private markets alternatives, may increase the cost and reduce the availability of suitable investments, thereby reducing our investment returns in the future; and • the industries and businesses in which particular funds invest will vary.
For example: • Ownership of infrastructure assets may also present additional risk of liability for personal and property injury or impose significant operating challenges and costs with respect to, for example, compliance with zoning, environmental, worker, public health and safety or other applicable laws or government actions, which may have a material adverse effect on the operations, financial condition and liquidity of particular assets and ultimately affect investment returns. • Infrastructure asset investments may face construction and development risks including, without limitation: (i) labor disputes, shortages of material and skilled labor, or work stoppages; (ii) slower than projected construction progress and the unavailability or late delivery of necessary equipment; (iii) less than optimal coordination with public utilities in the relocation of their facilities; (iv) climate change, adverse weather conditions and unexpected construction conditions; (v) accidents or the breakdown or failure of construction equipment or processes; (vi) political or local opposition; (vii) failure to obtain regulatory approvals or permits; and (viii) catastrophic events, such as explosions, fires, war, terrorist activities, natural disasters and other similar events.
For example: 46 Table of Contents • Ownership of infrastructure assets may also present additional risk of liability for personal and property injury or impose significant operating challenges and costs with respect to, for example, compliance with zoning, environmental, worker, public health and safety or other applicable laws or government actions, which may have a material adverse effect on the operations, financial condition and liquidity of particular assets and ultimately affect investment returns. • Infrastructure asset investments may face construction and development risks including, without limitation: (i) labor disputes, shortages of material and skilled labor, or work stoppages; (ii) slower than projected construction progress and the unavailability or late delivery of necessary equipment; (iii) less than optimal coordination with public utilities in the relocation of their facilities; (iv) climate change, adverse weather conditions and unexpected construction conditions; (v) accidents or the breakdown or failure of construction equipment or processes; (vi) political or local opposition; (vii) failure to obtain regulatory approvals or permits; and (viii) catastrophic events, such as explosions, fires, war, terrorist activities, natural disasters and other similar events.
The extent and impact of any sanctions imposed in connection with the Russia-Ukraine conflict may cause additional financial market volatility and impact the global economy. Volatility and disruption in the equity and credit markets can adversely affect the portfolio companies in which private markets funds invest and adversely affect the investment performance of the StepStone Funds and advisory accounts.
The extent and impact of any sanctions imposed in connection with the Russia-Ukraine conflict may also cause additional financial market volatility and impact the global economy. Volatility and disruption in the equity and credit markets can adversely affect the portfolio companies in which private markets funds invest and adversely affect the investment performance of the StepStone Funds and advisory accounts.
Accordingly, to the extent that SSG is disallowed a deduction for its distributive share of compensation expense under Section 162(m) of the Code, it may result in additional U.S. federal income tax liability for SSG and/or reduce cash available for distribution to SSG’s stockholders or for the payment of other expenses and obligations of SSG. 63 Table of Contents If StepStone Group Inc. were deemed an “investment company” under the Investment Company Act of 1940 as a result of its ownership of the Partnership or the General Partner, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
Accordingly, to the extent that SSG is disallowed a deduction for its distributive share of compensation expense under Section 162(m) of the Code, it may result in additional U.S. federal income tax liability for SSG and/or reduce cash available for distribution to SSG’s stockholders or for the payment of other expenses and obligations of SSG. 64 Table of Contents If StepStone Group Inc. were deemed an “investment company” under the Investment Company Act of 1940 as a result of its ownership of the Partnership or the General Partner, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
The SEC in particular has increased its regulation of the asset management and private equity industries in recent years, focusing on the private equity industry’s fees, allocation of expenses to funds, valuation practices, allocation of fund investment opportunities, disclosures to clients, the allocation of broken-deal expenses, the management of conflicts of interest disclosures and other fiduciary obligations.
The SEC in particular has increased its regulation and scrutiny of the asset management and private equity industries in recent years, focusing on the private equity industry’s fees, allocation of expenses to funds, valuation practices, allocation of fund investment opportunities, disclosures to clients, the allocation of broken-deal expenses, the management of conflicts of interest disclosures and other fiduciary obligations.
In particular, the SEC has signaled an increased emphasis on investment adviser and private fund regulation and has proposed a number of new rules that, if adopted as proposed, would impose significant changes on investment advisers and their management of private funds (including with respect to fund audits, adviser-led secondary transactions, fee and expense allocation and reporting, beneficial ownership reporting under Exchange Act Sections 13(d) and 13(g), reporting on Form PF, Rule 10b5-1 insider trading plans, borrowings, indemnification, side letters, cybersecurity risk management, and annual compliance reviews), and the SEC is expected to propose additional changes in the future.
In particular, the SEC has signaled an increased emphasis on investment adviser and private fund regulation and has adopted new rules that impose significant changes related to reporting on Form PF and Rule 10b5-1 insider trading plans, and has proposed a number of new rules that, if adopted as proposed, would impose further significant changes on investment advisers and their management of private funds (including with respect to fund audits, adviser-led secondary transactions, fee and expense allocation and reporting, beneficial ownership reporting under Exchange Act Sections 13(d) and 13(g), borrowings, indemnification, side letters, cybersecurity risk management, and annual compliance reviews), and the SEC is expected to propose additional changes in the future.
In the event of the insolvency of a custodian, counterparty or any other party that is holding assets of our funds as collateral, our funds might not be able to recover equivalent assets in full as they will rank among the custodian’s or counterparty’s unsecured creditors in relation to the assets held as collateral.
In the event of the insolvency or bankruptcy of a custodian, counterparty or any other party that is holding assets of our funds as collateral, our funds might not be able to recover equivalent assets in full as they will rank among the custodian’s or counterparty’s unsecured creditors in relation to the assets held as collateral.
Any determination that we have violated the FCPA or other applicable anti-corruption, sanctions or export control laws could subject us to, among other things, civil and criminal penalties, material fines, profit disgorgement, injunctions on future conduct, securities litigation and a general loss of client confidence, any one of which could adversely affect our business prospects, financial condition and results of operations. 55 Table of Contents Regulation of investment advisers outside the United States could adversely affect our ability to operate our business.
Any determination that we have violated the FCPA or other applicable anti-corruption, sanctions or export control laws could subject us to, among other things, civil and criminal penalties, material fines, profit disgorgement, injunctions on future conduct, securities litigation and a general loss of client confidence, any one of which could adversely affect our business prospects, financial condition and results of operations. 56 Table of Contents Regulation of investment advisers outside the United States could adversely affect our ability to operate our business.
We will not be reimbursed if the actual benefits ultimately realized by us are less than were projected in the computation of the early termination payment. 61 Table of Contents Payments under each Tax Receivable Agreement will be based on the tax reporting positions that we will determine and the IRS or another tax authority may challenge all or part of the tax basis increases or the inheritance of tax attributes from the Blocker Companies, as well as other related tax positions we take, and a court could sustain such challenge.
We will not be reimbursed if the actual benefits ultimately realized by us are less than were projected in the computation of the early termination payment. 62 Table of Contents Payments under each Tax Receivable Agreement will be based on the tax reporting positions that we will determine and the IRS or another tax authority may challenge all or part of the tax basis increases or the inheritance of tax attributes from the Blocker Companies, as well as other related tax positions we take, and a court could sustain such challenge.
General Risk Factors The market price of our Class A common stock may be volatile, which could cause the value of stockholders’ investments to decline. The price of our Class A common stock has been volatile, and we have a relatively limited trading history.
General Risk Factors The market price of our Class A common stock has been, and may continue to be volatile, which could cause the value of stockholders’ investments to decline. The price of our Class A common stock has been volatile, and we have a relatively limited trading history.
Infrastructure investments may involve the subcontracting of design and construction activities in respect of projects, and as a result the investments we make on behalf of clients or we recommend to our clients are subject to the risks that contractual provisions passing liabilities to a subcontractor could be ineffective, the subcontractor fails to perform services which it has agreed to perform and the subcontractor becomes insolvent. 44 Table of Contents Infrastructure investments often involve an ongoing commitment to municipal, state, federal or foreign government or regulatory agencies.
Infrastructure investments may involve the subcontracting of design and construction activities in respect of projects, and as a result the investments we make on behalf of clients or we recommend to our clients are subject to the risks that contractual provisions passing liabilities to a subcontractor could be ineffective, the subcontractor fails to perform services which it has agreed to perform and the subcontractor becomes insolvent. 47 Table of Contents Infrastructure investments often involve an ongoing commitment to municipal, state, federal or foreign government or regulatory agencies.
We may pay dividends to our stockholders, but our ability to do so is subject to the discretion of our board of directors and may be limited by our holding company structure and applicable provisions of Delaware law.
We currently pay dividends to our stockholders, but our ability to do so is subject to the discretion of our board of directors and may be limited by our holding company structure and applicable provisions of Delaware law.
In addition, the structuring of future transactions and investments may take into consideration the partners’ tax considerations even where no similar benefit would accrue to us. 65 Table of Contents We rely on our equity ownership, governance rights and other contractual arrangements to control certain of our consolidated subsidiaries that are not wholly-owned, which may provide us less effective operational control than wholly owning such subsidiaries.
In addition, the structuring of future transactions and investments may take into consideration the partners’ tax considerations even where no similar benefit would accrue to us. 66 Table of Contents We rely on our equity ownership, governance rights and other contractual arrangements to control certain of our consolidated subsidiaries that are not wholly-owned, which may provide us less effective operational control than wholly owning such subsidiaries.
In addition, a court could find that one of our co-investment funds has formed a partnership-in-fact conducting a trade or business and would therefore be jointly and severally liable for the portfolio company’s unfunded pension liabilities. 51 Table of Contents In addition, the Partnership, along with certain of our consolidated subsidiaries, is registered as an investment adviser with the SEC and is subject to the requirements and regulations of the Investment Advisers Act.
In addition, a court could find that one of our co-investment funds has formed a partnership-in-fact conducting a trade or business and would therefore be jointly and severally liable for the portfolio company’s unfunded pension liabilities. 52 Table of Contents In addition, the Partnership, along with certain of our consolidated subsidiaries, is registered as an investment adviser with the SEC and is subject to the requirements and regulations of the Investment Advisers Act.
SSG’s ability to achieve benefits from any tax basis increases or other tax benefits will depend upon a number of factors, as discussed below, including the timing and amount of our future income. 60 Table of Contents We will not be reimbursed for any payments previously made under the Tax Receivable Agreements if the basis increases or other tax benefits described above are successfully challenged by the IRS or another taxing authority.
SSG’s ability to achieve benefits from any tax basis increases or other tax benefits will depend upon a number of factors, as discussed below, including the timing and amount of our future income. 61 Table of Contents We will not be reimbursed for any payments previously made under the Tax Receivable Agreements if the basis increases or other tax benefits described above are successfully challenged by the IRS or another taxing authority.
Pursuant to recently enacted regulations issued under Section 162(m) of the Code, SSG may not be permitted to deduct its distributive share of compensation expense to the extent that the compensation was paid by the Partnership to certain of SSG’s covered employees, potentially resulting in additional U.S. federal income tax liability for SSG and reducing cash available for distribution to SSG’s stockholders and/or for the payment of other expenses and obligations of SSG.
Pursuant to the regulations issued under Section 162(m) of the Code, SSG may not be permitted to deduct its distributive share of compensation expense to the extent that the compensation was paid by the Partnership to certain of SSG’s covered employees, potentially resulting in additional U.S. federal income tax liability for SSG and reducing cash available for distribution to SSG’s stockholders and/or for the payment of other expenses and obligations of SSG.
Our amended and restated certificate of incorporation provides that, unless we select or consent to the selection of an alternative forum, all complaints asserting any internal corporate claims, which include claims in 68 Table of Contents the right of our company (i) that are based upon a violation of a duty by a current or former director, officer, employee or stockholder in such capacity or (ii) as to which the DGCL confers jurisdiction upon the Court of Chancery, shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, another state court or a federal court located within the State of Delaware.
Our amended and restated certificate of incorporation provides that, unless we select or consent to the selection of an alternative forum, all complaints asserting any internal corporate claims, which include claims in the right of our company (i) that are based upon a violation of a duty by a current or former director, officer, employee or stockholder in such capacity or (ii) as to which the DGCL confers jurisdiction upon the Court of Chancery, shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, another state court or a federal court located within the State of Delaware.
We cannot assure you that we will successfully identify, negotiate, complete or integrate such transactions, or that any completed transactions will produce favorable financial results. 45 Table of Contents Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar, or from which we are currently exempt, and may lead to increased litigation and regulatory risk.
We cannot assure you that we will successfully identify, negotiate, complete or integrate such transactions, or that any completed transactions will produce favorable financial results. 48 Table of Contents Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar, or from which we are currently exempt, and may lead to increased litigation and regulatory risk.
Pursuant to recently enacted regulations with respect to Section 162(m) of the Code issued by the IRS, SSG will not be permitted to deduct its distributive share of compensation expense allocated to it, to the extent that such distributive share plus the amount of any compensation paid directly by SSG exceeds $1,000,000 with respect to a covered employee, even if the Partnership, rather than SSG, pays the compensation to SSG’s covered employees.
Pursuant to the regulations with respect to Section 162(m) of the Code issued by the IRS, SSG will not be permitted to deduct its distributive share of compensation expense allocated to it, to the extent that such distributive share plus the amount of any compensation paid directly by SSG exceeds $1,000,000 with respect to a covered employee, even if the Partnership, rather than SSG, pays the compensation to SSG’s covered employees.
Any of these events could cause a reduction to AUM and consequently cause our earnings to decline and materially and adversely affect our business, financial condition and results of operations. 35 Table of Contents Valuation methodologies for certain assets in the StepStone Funds are subjective, and the values of assets established pursuant to such methodologies may never be realized, which could result in significant losses for the StepStone Funds.
Any of these events could cause a reduction to AUM and consequently cause our earnings to decline and materially and adversely affect our business, financial condition and results of operations. 36 Table of Contents Valuation methodologies for certain assets in the StepStone Funds are subjective, and the values of assets established pursuant to such methodologies may never be realized, which could result in significant losses for the StepStone Funds.
The termination of such relationships by a critical mass of such fund managers and sponsors or the imposition of widespread restrictions on our ability to use the data we obtain for our reporting and monitoring services could adversely affect our business, financial condition and results of operations. 39 Table of Contents We and our clients depend on the reliability of our proprietary data and technology platforms and other data processing systems.
The termination of such relationships by a critical mass of such fund managers and sponsors or the imposition of widespread restrictions on our ability to use the data we obtain for our reporting and monitoring services could adversely affect our business, financial condition and results of operations. 41 Table of Contents We and our clients depend on the reliability of our proprietary data and technology platforms and other data processing systems.
We may choose to manage these excess distributions through a number of different approaches, including through the payment of dividends to our Class A common stockholders or by applying them to other corporate purposes. 62 Table of Contents We may be required to fund withholding tax upon certain exchanges of Class B units into shares of Class A common stock by non-U.S. holders.
We may choose to manage these excess distributions through a number of different approaches, including through the payment of dividends to our Class A common stockholders or by applying them to other corporate purposes. 63 Table of Contents We may be required to fund withholding tax upon certain exchanges of Class B units into shares of Class A common stock by non-U.S. holders.
We cannot assure you that we will be able to maintain leverage levels in compliance with such covenants. Any failure to comply with these financial and other covenants, if not waived, could cause a default or event of default under such indebtedness. 46 Table of Contents We are subject to risks in using custodians, counterparties, administrators and other agents.
We cannot assure you that we will be able to maintain leverage levels in compliance with such covenants. Any failure to comply with these financial and other covenants, if not waived, could cause a default or event of default under such indebtedness. 49 Table of Contents We are subject to risks in using custodians, counterparties, administrators and other agents.
If any of the foregoing were to occur, the values the investments we have made on behalf of clients or we recommend to our clients could decrease and our financial condition, results of operations and cash flow could suffer as a result. 38 Table of Contents Our risk management strategies and procedures may leave us exposed to unidentified or unanticipated risks.
If any of the foregoing were to occur, the values the investments we have made on behalf of clients or we recommend to our clients could decrease and our financial condition, results of operations and cash flow could suffer as a result. 40 Table of Contents Our risk management strategies and procedures may leave us exposed to unidentified or unanticipated risks.
In addition, if we fail to monitor and adapt to changes in policy and the regulations to which we are or may become subject, we could be subject to enforcement actions, which may materially and adversely affect our businesses, financial condition and results of operations. 53 Table of Contents Future changes to tax laws or our effective tax rate could materially adversely affect our company and reduce net returns to our stockholders.
In addition, if we fail to monitor and adapt to changes in policy and the regulations to which we are or may become subject, we could be subject to enforcement actions, which may materially and adversely affect our businesses, financial condition and results of operations. 54 Table of Contents Future changes to tax laws or our effective tax rate could materially adversely affect our company and reduce net returns to our stockholders.
In addition, Class B and Class C limited partners in the Partnership would benefit from any value attributable to such accumulated cash balances as a result of their ownership of Class A common stock following an exchange of their units for Class A common stock. 66 Table of Contents The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
In addition, Class B and Class C limited partners in the Partnership would benefit from any value attributable to such accumulated cash balances as a result of their ownership of Class A common stock following an exchange of their units for Class A common stock. 67 Table of Contents The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
Many factors affect our ability to compete successfully, including: • some of our competitors have more relevant experience, greater financial and other resources and more personnel than we do; • if, as we expect, allocation of assets to private markets investment strategies increases, there may be increased competition for private markets investments and access to fund managers; • certain clients may prefer to invest with private partnerships rather than a public company; and • other industry participants from time to time recruit our investment professionals and other employees away from us.
Many factors affect our ability to compete successfully, including: • some of our competitors have more relevant experience, greater financial and other resources and more personnel than we do; • if, as we expect, allocation of assets to private markets investment strategies increases, there may be increased competition for private markets investments and access to fund managers; • certain clients may prefer to invest with private partnerships rather than a public company; and 50 Table of Contents • other industry participants from time to time recruit our investment professionals and other employees away from us.
Fee reductions on existing or future new business could have a material adverse effect on our profit margins and results of operations. 36 Table of Contents We may need to pay “clawback” or “contingent repayment” obligations if and when they are triggered under the governing agreements of our funds.
Fee reductions on existing or future new business could have a material adverse effect on our profit margins and results of operations. 37 Table of Contents We may need to pay “clawback” or “contingent repayment” obligations if and when they are triggered under the governing agreements of our funds.
This obligation is known as a “clawback” or contingent repayment obligation. Our carried interest is generally determined at the end of the period on a hypothetical liquidation basis. As of March 31, 2022, if the funds were liquidated at their fair values, no material amounts would have been subject to contingent repayment.
This obligation is known as a “clawback” or contingent repayment obligation. Our carried interest is generally determined at the end of the period on a hypothetical liquidation basis. As of March 31, 2023, if the funds were liquidated at their fair values, no material amounts would have been subject to contingent repayment.
In addition, we believe StepStone Group Inc. is not an investment company under section 3(b)(1) of the Investment Company Act because it is primarily engaged in a non-investment company business. 64 Table of Contents The Investment Company Act and the rules thereunder contain detailed parameters for the organization and operations of investment companies.
In addition, we believe StepStone Group Inc. is not an investment company under section 3(b)(1) of the Investment Company Act because it is primarily engaged in a non-investment company business. 65 Table of Contents The Investment Company Act and the rules thereunder contain detailed parameters for the organization and operations of investment companies.
These risks include the following: general and local economic conditions; changes in supply of and demand for competing properties in an area (as a result, for example, of overbuilding); changes in building, environmental and other laws; diminished financial resources of tenants; fluctuations in the average occupancy and room rates for hotel properties; energy and supply shortages; uninsured or uninsurable risks; liability for “slip-and-fall” and other accidents on properties held by our funds; natural disasters; changes in government regulations (such as rent control and tax laws); changes in real property tax and transfer tax rates; changes in interest rates; the reduced availability of mortgage funds which may render the sale or refinancing of properties difficult or impracticable; negative developments in the economy that depress travel activity; environmental liabilities, including under environmental laws that impose, regardless of fault, joint and several liability for the cost of remediating contamination and compensation for damages; contingent liabilities on disposition of assets; unexpected cost overruns in connection with development projects; terrorist attacks, war and other factors that are beyond our control; and dependence on local operating partners.
These risks include the following: general and local economic conditions; changes in supply of and demand for competing properties in an area (as a result, for example, of overbuilding); changes in building, environmental and other laws; diminished financial resources of tenants; changes in demand for commercial office properties (including as a result of an increased prevalence of remote work); fluctuations in the average occupancy and room rates for hotel properties; energy and supply shortages; uninsured or uninsurable risks; liability for “slip-and-fall” and other accidents on properties held by our funds; natural disasters; changes in government regulations (such as rent control and tax laws); changes in real property tax and transfer tax rates; changes in interest rates; the reduced availability of mortgage funds which may render the sale or refinancing of properties difficult or impracticable; negative developments in the economy that depress travel activity; environmental liabilities, including under environmental laws that impose, regardless of fault, joint and several liability for the cost of remediating contamination and compensation for damages; contingent liabilities on disposition of assets; unexpected cost overruns in connection with development projects; terrorist attacks, war and other factors that are beyond our control; and dependence on local operating partners.
Outside the UK and EEA, the regulations to which we are subject relate primarily to registration and reporting obligations. 56 Table of Contents It is expected that additional laws and regulations will come into force in the UK, the EEA, the EU, and other countries in which we operate over the coming years.
Outside the UK and EEA, the regulations to which we are subject relate primarily to registration and reporting obligations. 57 Table of Contents It is expected that additional laws and regulations will come into force in the UK, the EEA, the EU, and other countries in which we operate over the coming years.
See “Evolving laws and government regulations could adversely affect us.” We may face damage to our professional reputation if our services are not regarded as satisfactory or for other reasons and may face legal liability to our clients and third parties under securities or other laws and regulations.
See “—Evolving laws and government regulations could adversely affect us.” We may face damage to our professional reputation if our services are not regarded as satisfactory or for other reasons and may face legal liability to our clients and third parties under securities or other laws and regulations.
Policy changes and regulatory reform by the U.S. federal government may create regulatory uncertainty for our funds’ portfolio companies and our investment strategies and adversely affect the profitability of the StepStone Funds’ portfolio companies. 52 Table of Contents Ongoing political developments could adversely impact our investment management and investment advisory businesses.
Policy changes and regulatory reform by the U.S. federal government may create regulatory uncertainty for our funds’ portfolio companies and our investment strategies and adversely affect the profitability of the StepStone Funds’ portfolio companies. 53 Table of Contents Ongoing political developments could adversely impact our investment management and investment advisory businesses.
Our reputation and our ability to operate and expand our business depend on computer hardware and software systems, including our proprietary data and technology platforms and other data processing systems, which may be vulnerable to security breaches or other cyber incidents.
Our reputation and our ability to operate and expand our business depend on computer hardware and software systems, including our proprietary data and technology platforms and other data processing systems, which can be vulnerable to security breaches or other cyber incidents.
Department of State administer and enforce various export control laws and regulations, including economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states, organizations and individuals.
Department of Commerce and the U.S. Department of State administer and enforce various export control laws and regulations, including economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states, organizations and individuals.
The availability of investment opportunities will be subject to market conditions and other factors outside of our control and the control of the fund managers with which we invest. Markets so far in 2022 have experienced meaningful headwinds, including falling equity values and increasing borrowing costs.
The availability of investment opportunities will be subject to market conditions and other factors outside of our control and the control of the fund managers with which we invest. Markets in 2022 and 2023 have experienced meaningful headwinds, including falling equity values and increasing borrowing costs.
The importance of our reputation may increase as we seek to expand our client base and into new private markets. 41 Table of Contents Our asset management and advisory activities subject us to the risk of significant legal liabilities to our clients and third parties, including our clients’ stockholders or beneficiaries.
The importance of our reputation may increase as we seek to expand our client base and into new private markets. Our asset management and advisory activities subject us to the risk of significant legal liabilities to our clients and third parties, including our clients’ stockholders or beneficiaries.
These risks could adversely affect the investment performance of the StepStone Funds and advisory accounts, which would adversely affect our business, financial condition and results of operations. Revenues from our real estate asset class are subject to the risks inherent in the ownership and operation of real estate and the construction and development of real estate.
These risks could adversely affect the investment performance of the StepStone Funds and advisory accounts, which would adversely affect our business, financial condition and results of operations. 45 Table of Contents Revenues from our real estate asset class are subject to the risks inherent in the ownership and operation of real estate and the construction and development of real estate.
If we experience a change of control (as defined under the Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”) or as otherwise set forth in the partnership agreements of our funds), continuation of the investment management agreements of our funds would be subject to client consent.
If we experience a change of control (as defined under the Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”) or as otherwise set forth in the partnership agreements of our funds), continuation of the investment management agreements of our 33 Table of Contents funds would be subject to client consent.
A compromise or corruption of our systems containing confidential information could damage our business relationships and adversely affect our business, financial condition and results of operations.
A compromise or corruption of our systems or that of our vendors containing confidential information could damage our business relationships and adversely affect our business, financial condition and results of operations.
Because members of our senior leadership team hold their economic interest through other entities, conflicts of interest may arise between them and the holders of our Class A common stock or with us. The Sunset Holders, who are members of our senior leadership team, beneficially owned approximately 30.5% of the outstanding Partnership units as of March 31, 2022.
Because members of our senior leadership team hold their economic interest through other entities, conflicts of interest may arise between them and the holders of our Class A common stock or with us. The Sunset Holders, who are members of our senior leadership team, beneficially owned approximately 30.9% of the outstanding Partnership units as of March 31, 2023.
Each of these factors could, in turn, have a material adverse effect on our business, financial condition and results of operations 33 Table of Contents Our failure to appropriately manage conflicts of interest could damage our reputation and adversely affect our business.
Each of these factors could, in turn, have a material adverse effect on our business, financial condition and results of operations Our failure to appropriately manage conflicts of interest could damage our reputation and adversely affect our business.
As a result, the dual class structure of our common stock may prevent the inclusion of our Class A common stock in such indices, may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure and may result in large institutional investors not purchasing shares of our Class A common stock.
As a result, the dual class structure of our common stock may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure and may result in large institutional investors not purchasing shares of our Class A common stock.
The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by others, including by our service providers. 40 Table of Contents We have implemented processes, procedures and internal controls designed to mitigate cybersecurity risks and cyber intrusions.
The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by others, including by our service providers. We have implemented processes, procedures and internal controls designed to mitigate cybersecurity risks and cyber intrusions.
In addition, concerns about, or a default by, one large participant could lead to significant liquidity problems for other participants, which may in turn expose us to significant losses.
In addition, concerns about, or a default by, one large participant could lead to significant liquidity problems for other participants or the broader market, which may in turn expose us to significant losses.
Such events could damage our business relationships and adversely affect our business, financial condition and results of operations. Cybersecurity risks and cyber incidents could adversely affect our business by causing a disruption to our operations, which could adversely affect our financial condition and results of operations.
Such events could damage our business relationships and adversely affect our business, financial condition and results of operations. 42 Table of Contents Cybersecurity risks and cyber incidents could adversely affect our business by causing a disruption to our operations, which could adversely affect our financial condition and results of operations.
Department of State. The FCPA is intended to prohibit bribery of foreign governments and their officials and political parties and requires public companies in the United States to keep books and records that accurately and fairly reflect those companies’ transactions. OFAC, the U.S. Department of Commerce and the U.S.
Department of Treasury’s Office of Foreign Assets Control (“OFAC”), the U.S. Department of Commerce and the U.S. Department of State. The FCPA is intended to prohibit bribery of foreign governments and their officials and political parties and requires public companies in the United States to keep books and records that accurately and fairly reflect those companies’ transactions. OFAC, the U.S.
These legislative developments, which create a common classification system and disclosure obligations focusing on ESG issues, largely apply from 2021 onwards and require additional disclosures to clients with respect to ESG factors, which may increase our compliance obligations and expenses, and could lead clients to reduce their investment with us.
These legislative developments, which create a common classification system and disclosure obligations focusing on ESG issues, require additional disclosures to clients with respect to ESG factors, which may increase our compliance obligations and expenses, and could lead clients to reduce their investment with us.
The historical investment returns of the StepStone Funds and advisory accounts have benefited from investment opportunities and general market conditions, including favorable borrowing conditions in the debt markets, and we cannot assure you that the StepStone Funds, advisory accounts or the underlying funds in which we invest will be able to avail themselves of comparable opportunities and conditions, particularly in light of recent market conditions.
The historical investment returns of the StepStone Funds and advisory accounts have benefited from investment opportunities and general market conditions, including favorable borrowing conditions in the debt markets during such historical periods, and we cannot assure you that the StepStone Funds, advisory accounts or the underlying funds in which we invest will be able to avail themselves of comparable opportunities and conditions, particularly in light of recent rising interest rates and other market conditions.
For example, the Biden administration and the current leadership of the SEC have signaled that they intend to seek to enact changes to numerous areas of law and regulations currently in effect.
The Biden administration and the current leadership of the SEC have also signaled that they intend to seek to enact further changes to numerous areas of law and regulations currently in effect.
In addition, the European Union’s General Data Protection Regulation (the “GDPR”) and the California Consumer Privacy Act (“CCPA”) impose stringent data protection requirements. There are substantial financial penalties for breach of the GDPR, including up to the higher of 20 million Euros or 4% of group annual worldwide turnover.
In addition, the European Union’s General Data Protection Regulation (the “GDPR”) and the California Consumer Privacy Act (“CCPA”) impose stringent data protection requirements, and we may also be subject to additional state privacy laws. There are substantial financial penalties for breach of the GDPR, including up to the higher of 20 million Euros or 4% of group annual worldwide turnover.
Legal and regulatory developments also contribute to the increasing level of our expenses. The future growth of our business will depend, among other things, on our ability to maintain the appropriate infrastructure and staffing levels to sufficiently address our growth and may require us to incur significant additional expenses and commit additional senior management and operational resources.
The future growth of our business will depend, among other things, on our ability to maintain the appropriate infrastructure and staffing levels to sufficiently address our growth and may require us to incur significant additional expenses and commit additional senior management and operational resources.
The financial services industry is currently experiencing an uncertain political and regulatory environment. We expect a greater level of SEC enforcement activity under the current U.S. presidential administration, potentially targeting practices which were not targeted by the prior U.S. presidential administration.
The financial services industry is currently experiencing an uncertain political and regulatory environment. There has been a greater level of SEC enforcement activity under the current U.S. presidential administration, including targeting practices which were not targeted by the prior U.S. presidential administration.
In addition, we will depend on third parties to assist us in complying with regulatory obligations with respect to such registered funds.
In addition, we will depend on third parties to assist us in complying with regulatory obligations with respect to such registered funds and business development companies.
The Investment Company Act and the rules thereunder contain detailed parameters for the organization and operation of investment companies. Among other things, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, generally prohibit the issuance of options and impose stringent governance and board independence requirements.
Among other things, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, generally prohibit the issuance of options and impose stringent governance and board independence requirements.
We will need to continuously invest in our human resources and our infrastructure as a result of becoming a public company and the increasingly complex investment management industry and increasing sophistication of clients. In addition, the launch of our private wealth platform has and will require ongoing development of new infrastructure.
We will need to continuously invest in our human resources and our infrastructure as a result of the increasingly complex investment management industry, increasing sophistication of clients and our expansion into new jurisdictions. In addition, our newer private wealth platform has and will require ongoing development of new infrastructure.
Our profitability may also be adversely affected by our fixed costs and the possibility that we would be unable to reduce other costs within a time frame sufficient to match any decreases in revenue relating to changes in market and economic conditions. If our revenue declines without a commensurate reduction in our expenses, our net income will be lower.
Our profitability may also be adversely affected by our fixed costs and the possibility that we would be unable to reduce other costs within a time frame sufficient to match any decreases in revenue relating to changes in market and economic conditions.
Our failure to successfully manage and grow our geographically diverse operations could impair our ability to react quickly to changing business and market conditions and to enforce compliance with non-U.S. standards and procedures.
We also must communicate and monitor standards and directives across our global operations. Our failure to successfully manage and grow our geographically diverse operations could impair our ability to react quickly to changing business and market conditions and to enforce compliance with non-U.S. standards and procedures.
Any interruption or deterioration in the performance of these third parties, failures of their information systems and technology or cyber and security breaches could put our sensitive information at risk or result in the shutdown of a service provider, which could impair the quality of the funds’ operations and harm our reputation, thereby adversely affecting our business, financial condition and results of operations.
Any interruption or deterioration in the performance of these third parties, failures of their information systems and technology or cyber and security breaches could put our sensitive information at risk or result in the shutdown of a service provider, and indemnification by, or insurance coverage of, such service providers may not be sufficient to cover any damage or loss, which could impair the quality of the funds’ operations and harm our reputation, thereby adversely affecting our business, financial condition and results of operations.
Our non-U.S. operations carry special financial and business risks, which include: fluctuations in foreign currency exchange rates that could adversely affect our results; unexpected changes in trading policies, regulatory requirements, tariffs and other barriers; local labor conditions, protections and regulations; adverse consequences or restrictions on the repatriation of earnings; potentially adverse tax consequences, such as trapped foreign losses; less stable political and economic environments; terrorism, political hostilities, war, outbreak of disease and other civil disturbances or other catastrophic events that reduce business activity; cultural and language barriers and the need to adopt different business practices in different geographic areas; and difficulty collecting fees and, if necessary, enforcing judgments.
Our non-U.S. operations carry special financial and business risks, which include: fluctuations in foreign currency exchange rates that could adversely affect our results; unexpected changes in trading policies, regulatory requirements, tariffs and other barriers; local labor conditions, protections and regulations; adverse consequences or restrictions on the repatriation of earnings; potentially adverse tax consequences, such as trapped foreign losses or excise taxes (or other similar taxes); less stable political and economic environments; terrorism, political hostilities, war, outbreak of disease and other civil disturbances or other catastrophic events that reduce business activity; cultural and language barriers and the need to adopt different business practices in different geographic areas; and difficulty collecting fees and, if necessary, enforcing judgments. 44 Table of Contents As part of our day-to-day operations outside the United States, we are required to create compensation programs, employment policies, privacy policies, compliance policies and procedures and other administrative programs that comply with the laws of multiple countries.
In addition, our funds’ cash held with a custodian or counterparty generally will not be segregated from the custodian’s or counterparty’s own cash, and our funds may therefore rank as unsecured creditors in relation thereto.
In addition, our funds’ cash held with a custodian or counterparty generally will not be segregated from the custodian’s or counterparty’s own cash, and our funds may therefore rank as unsecured creditors in relation thereto. Risks Related to Our Industry The investment management and investment advisory business is intensely competitive.
Any exclusion from stock indices could result in a less active trading market for our Class A common stock. Any actions or publications by stockholder advisory firms or institutional investors critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.
Any actions or publications by stockholder advisory firms or institutional investors critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.
One of our funds we offer to private wealth investors is a registered investment company under the Investment Company Act and we expect that additional funds we offer to private wealth investors will also be registered investment companies under the Investment Company Act or applicable laws in other jurisdictions.
Certain U.S. funds we offer to private wealth investors are registered investment companies or business development companies under the Investment Company Act and we expect that additional funds we offer will also be registered investment companies or business development companies under the Investment Company Act or applicable laws in other jurisdictions.
The global financial markets and business climate have recently deteriorated and may continue to deteriorate, including due to continued rising interest rates, ongoing high inflation, reduced availability of credit, changes in laws and regulation, terrorism or political uncertainty, war (including the ongoing Russia-Ukraine conflict), and severe public health events, such as the COVID-19 pandemic.
The global financial markets and business climate have recently deteriorated and may continue to deteriorate, including due to continued rising interest rates, ongoing high inflation, reduced availability of credit, recession risk, regional and international bank failures, changes in laws and regulation, terrorism or political uncertainty, war (including the ongoing Russia-Ukraine conflict), and potential recession.
Any adverse effect caused by the use of leverage by portfolio companies in which we directly or indirectly invest could in turn adversely affect the investment returns of the StepStone Funds and advisory accounts.
The adverse effects of leverage on portfolio companies in which we directly or indirectly invest can adversely affect the investment returns of the StepStone Funds and advisory accounts.
Any portion of our cash flow required for debt service will not be available for our operations, distributions, dividends or other purposes. Any substantial decrease in net operating cash flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or force us to modify our operations.
Any substantial decrease in net operating cash flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or force us to modify our operations.
However, if a client has invested little or no capital, for instance early in the life of a fund, then the forfeiture penalty may not be a significant deterrent to default.
Any client that does not fund a capital call may be subject to penalties, potentially including forfeiting a significant amount of its existing investment in that fund. However, if a client has invested little or no capital, for instance early in the life of a fund, then the forfeiture penalty may not be a significant deterrent to default.
In addition, changes to asset allocation policies or new laws or regulations resulting from declines in public equity markets may restrict or prohibit investors from investing in new or successor StepStone Funds or funding existing commitments.
Federal Deposit Insurance Corporation, which temporarily delayed certain clients fulfilling capital calls to the StepStone Funds. In addition, changes to asset allocation policies or new laws or regulations resulting from declines in public equity markets may restrict or prohibit investors from investing in new or successor StepStone Funds or funding existing commitments.
Our EU based business, as well as any global product sales into the EU, is subject to these requirements. In the U.S., the SEC has created a Climate and ESG Task Force in its Division of Enforcement, which will focus on identifying any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.
In the U.S., the SEC has created a Climate and ESG Task Force in its Division of Enforcement, which has and is expected to continue to focus on identifying any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.
Access to secondary investment opportunities is also highly competitive and is often controlled by a limited number of fund managers and intermediaries. 32 Table of Contents Third-party clients in many StepStone Funds have the right to remove us as the general partner of the relevant fund and to terminate the investment period under certain circumstances, leading to a decrease in our revenues, which could be substantial.
Third-party clients in many StepStone Funds have the right to remove us as the general partner of the relevant fund and to terminate the investment period under certain circumstances, leading to a decrease in our revenues, which could be substantial.
In addition, because our senior management and other professionals generally hold their economic interests through pass-through entities like the Partnership or other affiliated entities, which are not subject to U.S. federal and state entity-level income taxes, and our Class A common stockholders will hold their interests through StepStone Group Inc., which is subject to entity-level taxation as a corporation in the United States, conflicts relating to the selection and structuring of investments or other matters may arise between the Class B unitholders (who are also Class B stockholders of StepStone Group Inc.) and Class C unitholders of the Partnership, on the one hand, and the Class A stockholders of StepStone Group Inc., on the other hand.
As a result, we may take actions with respect to the allocation of investments among the StepStone Funds (including funds and accounts that have different fee structures), the purchase or sale of investments in the StepStone Funds, the structuring of investment transactions for those StepStone Funds, the advice we provide or other actions in order to comply with these fiduciary and contractual obligations. 34 Table of Contents In addition, because our senior management and other professionals generally hold their economic interests through pass-through entities like the Partnership or other affiliated entities, which are not subject to U.S. federal and state entity-level income taxes, and our Class A common stockholders will hold their interests through StepStone Group Inc., which is subject to entity-level taxation as a corporation in the United States, conflicts relating to the selection and structuring of investments or other matters may arise between the Class B unitholders (who are also Class B stockholders of StepStone Group Inc.) and Class C unitholders of the Partnership, on the one hand, and the Class A stockholders of StepStone Group Inc., on the other hand.
During fiscal 2022, the closing price of our Class A common stock ranged from a low of $30.07, and to a high closing price of $54.99. The closing price of our Class A common stock has fallen to as low as $23.16 in fiscal 2023 to date.
During fiscal 2023, the closing price of our Class A common stock ranged from a low of $23.11, and to a high closing price of $33.76. The closing price of our Class A common stock has fallen to as low as $21.10 in fiscal 2024 to date.
Our business, financial condition and results of operations could be adversely affected, possibly materially, if we are unable to successfully manage these and other risks of global operations in a volatile environment.
Our business, financial condition and results of operations could be adversely affected, possibly materially, if we are unable to successfully manage these and other risks of global operations in a volatile environment. If our non-U.S. business increases relative to our total business, these factors could have a more pronounced effect on our results of operations or growth prospects.
Difficult or volatile market and political conditions can adversely affect our business by reducing the market value of the assets we manage or causing our SMA clients to reduce their investments in private markets.
Difficult or volatile market and political conditions can adversely affect our business by reducing the market value of the assets we manage, causing our clients to reduce their investments in private markets, reducing the number of high-quality investment managers with whom we may invest, and reducing the ability of our funds to raise or deploy capital.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. We lease our corporate headquarters office space located at 450 Lexington Avenue, 31 st Floor, New York, NY 10017. We also lease space for our offices located in Baltimore, Beijing, Charlotte, Cleveland, Dublin, Frankfurt, Hong Kong, La Jolla, London, Luxembourg, Miami, Palo Alto, Perth, Rome, San Francisco, Santiago, São Paolo, Seoul, Sydney, Tokyo, Toronto and Zurich.
Biggest changeWe also lease space for our offices located in Baltimore, Beijing, Charlotte, Cleveland, Dallas, Dublin, Frankfurt, La Jolla, London, Luxembourg, Mexico City, Miami, Orlando, Palo Alto, Perth, Rome, San Francisco, Santiago, São Paolo, Seoul, Sydney, Tokyo, Toronto and Zurich. We do not own any real property.
We do not own any real property. We believe our existing facilities are adequate for our current needs and that suitable additional space will be available as and when needed.
We believe our existing facilities are adequate for our current needs and that suitable additional space will be available as and when needed.
Added
Item 2. Properties. We lease our corporate headquarters office space located at 450 Lexington Avenue, 31 st Floor, New York, NY 10017.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. In the normal course of business, we may be subject to various legal, judicial and administrative proceedings. See note 16 to our consolidated financial statements included in Part II, Item 8 of this annual report on Form 10-K. Item 4. Mine Safety Disclosures. Not applicable. 69 Table of Contents PART II
Biggest changeItem 3. Legal Proceedings. In the normal course of business, we may be subject to various legal, judicial and administrative proceedings. See note 16 to our consolidated financial statements included in Part II, Item 8 of this annual report on Form 10-K. Item 4. Mine Safety Disclosures. Not applicable. 70 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table presents information regarding quarterly dividends on Class A common shares for the periods indicated: Quarterly Fiscal Period 1 Dividend Payment Date Dividend Per Share of Class A Common Stock First quarter N/A Second quarter N/A Third quarter N/A Fourth quarter March 12, 2021 $ 0.07 Total dividends paid in FY2021 $ 0.07 First quarter July 15, 2021 $ 0.07 Second quarter September 15, 2021 0.07 Third quarter December 15, 2021 0.15 Fourth quarter March 15, 2022 0.15 Total dividends paid in FY2022 $ 0.44 _______________________________ (1) Prior to the Company’s IPO on September 16, 2020, it was a wholly-owned subsidiary of the Partnership, had a single class of common stock and did not pay dividends.
Biggest changeSee “Risk Factors—Risks Related to Our Organizational Structure— We currently pay dividends to our stockholders, but our ability to do so is subject to the discretion of our board of directors and may be limited by our holding company structure and applicable provisions of Delaware law.” 71 Table of Contents The following table presents information regarding quarterly dividends on Class A common shares for the periods indicated: Quarterly Fiscal Period 1 Dividend Payment Date Dividend Per Share of Class A Common Stock First quarter N/A Second quarter N/A Third quarter N/A Fourth quarter March 12, 2021 $ 0.07 Total dividends paid in FY2021 $ 0.07 First quarter July 15, 2021 $ 0.07 Second quarter September 15, 2021 0.07 Third quarter December 15, 2021 0.15 Fourth quarter March 15, 2022 0.15 Total dividends paid in FY2022 $ 0.44 First quarter June 30, 2022 $ 0.20 Second quarter September 15, 2022 0.20 Third quarter December 15, 2022 0.20 Fourth quarter March 15, 2023 0.20 Total dividends paid in FY2023 $ 0.80 _______________________________ (1) Prior to the Company’s IPO on September 16, 2020, it was a wholly-owned subsidiary of the Partnership, had a single class of common stock and did not pay dividends.
In connection with deciding whether to pay any dividend to our Class A stockholders, the board of directors will take into account: • general economic and business conditions; • our financial condition and results of operations; • our available cash and current and anticipated cash needs; • our capital requirements; • contractual, legal, tax and regulatory requirements, restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries (including the Partnership) to us; and • such other factors as our board of directors may deem relevant.
In connection with deciding whether to pay any dividend to our Class A stockholders, the board of directors will take into account: • general economic and business conditions; • our financial condition and results of operations; • our available cash and current and anticipated cash needs; • our capital requirements; 72 Table of Contents • contractual, legal, tax and regulatory requirements, restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries (including the Partnership) to us; and • such other factors as our board of directors may deem relevant.
Dividends paid, as reported in this table, relate to the preceding quarterly period in which they were earned. 70 Table of Contents Subject to funds being legally available, we intend to cause the Partnership to make distributions to each of its partners, including SSG, in an amount intended to enable each partner to pay all applicable taxes on taxable income allocable to such partner and to allow SSG to make payments under the Tax Receivable Agreements, and non-pro rata payments to SSG to reimburse it for corporate and other overhead expenses.
Subject to funds being legally available, we intend to cause the Partnership to make distributions to each of its partners, including SSG, in an amount intended to enable each partner to pay all applicable taxes on taxable income allocable to such partner and to allow SSG to make payments under the Tax Receivable Agreements, and non-pro rata payments to SSG to reimburse it for corporate and other overhead expenses.
Holders of Record As of May 25, 2022, there was one stockholder of record of our Class A common stock and there were 63 stockholders of record of our Class B common stock.
Holders of Record As of May 23, 2023, there was one stockholder of record of our Class A common stock and there were 61 stockholders of record of our Class B common stock.
To the extent that SSG does not distribute such excess cash as dividends on the Class A common stock or otherwise undertake such ameliorative actions and instead, for example, holds such cash balances, the limited partners of the Partnership (not including SSG) may benefit from any value attributable to such cash balances as a result of their ownership of Class A common stock following an exchange of their Class B units for shares of the Class A common stock, notwithstanding that such limited partners may previously have participated as holders of Class B units in distributions by the Partnership that resulted in such excess cash balances at SSG. 71 Table of Contents Recent Sales of Unregistered Securities Except as previously disclosed in Current Reports on Form 8-K, no unregistered sales of the Company’s equity securities were made during the year ended March 31, 2022.
To the extent that SSG does not distribute such excess cash as dividends on the Class A common stock or otherwise undertake such ameliorative actions and instead, for example, holds such cash balances, the limited partners of the Partnership (not including SSG) may benefit from any value attributable to such cash balances as a result of their ownership of Class A common stock following an exchange of their Class B units for shares of the Class A common stock, notwithstanding that such limited partners may previously have participated as holders of Class B units in distributions by the Partnership that resulted in such excess cash balances at SSG.
The graph assumes an initial investment of $100.00 at the close of trading on September 16, 2020 and that all dividends paid by companies included in these indices have been reinvested.
The graph assumes an initial investment of $100.00 at the close of trading on September 16, 2020 and that all dividends paid by companies included in these indices have been reinvested. The performance shown in the graph below is not intended to forecast or be indicative of future stock price performance.
Stock Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, or otherwise subject to the liabilities under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
Stock Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, or otherwise subject to the liabilities under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing. 73 Table of Contents The following graph depicts the total cumulative stockholder return on our common stock from September 16, 2020, the first day of trading of our Class A common stock on Nasdaq, through March 31, 2023, relative to the performance of the S&P 500 Index and the Dow Jones US Asset Managers Index.
As such, there is no quarterly dividend information reported for the quarter ended September 30, 2020 or any periods prior.
As such, there is no quarterly dividend information reported for the quarter ended September 30, 2020 or any periods prior. Dividends paid, as reported in this table, relate to the preceding quarterly period in which they were earned.
The performance shown in the graph below is not intended to forecast or be indicative of future stock price performance. 72 Table of Contents September 16, 2020 March 31, 2021 March 31, 2022 StepStone Group Inc. $ 100.00 $ 141.36 $ 134.05 S&P 500 Index $ 100.00 $ 118.33 $ 136.80 Dow Jones US Asset Managers Index $ 100.00 $ 140.46 $ 153.12 Item 6. [Reserved] 73 Table of Contents
September 16, 2020 March 31, 2021 March 31, 2022 March 31, 2023 StepStone Group Inc. $ 100.00 $ 141.36 $ 134.05 $ 101.29 S&P 500 Index $ 100.00 $ 118.33 $ 136.80 $ 126.20 Dow Jones US Asset Managers Index $ 100.00 $ 140.46 $ 153.12 $ 138.32 Item 6. [Reserved] 74 Table of Contents
In addition, on May 26, 2022, we announced a dividend of $0.20 per share of Class A common stock, which is payable on June 30, 2022 to holders of record at the close of business on June 15, 2022. This dividend relates to earnings in respect of our fourth quarter of fiscal year 2022.
On May 24, 2023, we announced a quarterly cash dividend of $0.20 per share of Class A common stock and a supplemental cash dividend of $0.25 per share of Class A common stock, both payable on June 30, 2023 to holders of record at the close of business on June 15, 2023.
Removed
Dividend Policy The Board of Directors of the Company declared a quarterly cash dividend of $0.15 per share of Class A common stock, which was paid on March 15, 2022 to holders of record at the close of business on February 28, 2022.
Added
Dividend Policy The declaration and payment of any dividends is subject to the approval of the board of directors of the Company, which may change our dividend policy at any time.
Removed
Use of Proceeds None. Issuer Purchases of Equity Securities None.
Added
Holders of our Class B common stock will not be entitled to dividends distributed by the Company, but will share in the distributions made by the Partnership on a pro rata basis as further discussed below.
Removed
The following graph depicts the total cumulative stockholder return on our common stock from September 16, 2020, the first day of trading of our Class A common stock on Nasdaq, through March 31, 2022, relative to the performance of the S&P 500 Index and the Dow Jones US Asset Managers Index.
Added
The quarterly cash dividend and supplemental cash dividend relate to earnings in respect of our fourth fiscal quarter and full fiscal year 2023, respectively.
Added
The declaration of this supplemental dividend does not guarantee that the Company will declare supplemental dividends in the future and the board of directors may, in its discretion, decrease the level of dividends or discontinue the payment of dividends entirely.
Added
Recent Sales of Unregistered Securities Except as previously disclosed in Current Reports on Form 8-K, no unregistered sales of the Company’s equity securities were made during the year ended March 31, 2023. Use of Proceeds Not applicable. Issuer Purchases of Equity Securities None.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeStepStone Performance Summary by Asset Class PRIVATE EQUITY REAL ESTATE INFRASTRUCTURE PRIVATE DEBT INVESTMENT STRATEGY (1,3) NET IRR (2) NET TVM (2) INVESTMENT STRATEGY (3,4) NET IRR (2) NET TVM (2) INVESTMENT STRATEGY (3,5) NET IRR (2) INVESTMENT STRATEGY (3,7) IRR (7) Primaries 19.7% 1.7x Core/Core+ fund investments 9.0% 1.5x Primaries 11.6% Direct lending (Gross) (8) 7.5% Secondaries 21.5% 1.6x Value-add/opportunistic fund investments 10.4% 1.4x Secondaries 14.1% Distressed debt (Gross) (8) 10.7% Co-investments 25.1% 1.9x Real estate debt fund investments 6.4% 1.2x Co-investments (6) 8.8% Other (Gross) (8,9) 9.8% Value-add/opportunistic secondaries & co-investments 16.9% 1.3x Private debt gross track record (8) 8.7% Private debt net track record 7.9% _______________________________ (1) Private Equity includes 1,330 investments totaling $126.1 billion of capital commitments and excludes (i) two advisory co-investments and 156 client-directed investments, totaling $100.0 million and $19.6 billion, respectively, of capital commitments, (ii) investments for which StepStone does not provide monitoring and reporting services to the client that made the investment, and (iii) Greenspring investments until the data integration is completed.
Biggest change(5) Reflects outperformance of investments as compared to the MSCI ACWI Total Return using the Direct Alpha public market equivalent method. 104 Table of Contents StepStone Performance Summary by Asset Class PRIVATE EQUITY REAL ESTATE INFRASTRUCTURE PRIVATE DEBT INVESTMENT STRATEGY (1,2,4) NET IRR (3) NET TVM (3) INVESTMENT STRATEGY (1,4,5) NET IRR (3) NET TVM (3) INVESTMENT STRATEGY (1,4,6) NET IRR (3) INVESTMENT STRATEGY (1,4,8) NET IRR (3) Primaries 17.4% 1.6x Core/Core+ fund investments 8.8% 1.6x Primaries 10.7% Direct lending 6.5% Secondaries 18.0% 1.5x Value-add/opportunistic fund investments 10.1% 1.4x Secondaries 10.5% Distressed debt 9.3% Co-investments (7) 20.7% 1.7x Real estate debt fund investments 5.9% 1.2x Co-investments (7) 9.3% Other (9) 6.0% Value-add/opportunistic secondaries & co-investments 13.8% 1.3x _______________________________ (1) Investment returns reflect NAV data for underlying investments as of December 31, 2022, as reported by underlying managers up to 114 days following December 31, 2022.
A corresponding number of shares of Class B common stock were automatically redeemed at par value and canceled in connection with such exchange and a corresponding number of Class A units of the Partnership were issued to us.
A corresponding number of shares of Class B common stock were automatically redeemed at par value and canceled in connection with such exchange and a corresponding number of Class A units of the Partnership were issued to us.
A corresponding number of shares of Class B common stock were automatically redeemed at par value and canceled in connection with such exchange and a corresponding number of Class A units of the Partnership were issued to us.
A corresponding number of shares of Class B common stock were automatically redeemed at par value and canceled in connection with such exchange and a corresponding number of Class A units of the Partnership were issued to us.
A corresponding number of shares of Class B common stock were automatically redeemed at par value and canceled in connection with such exchange and a corresponding number of Class A units of the Partnership were issued to us.
A corresponding number of shares of Class B common stock were automatically redeemed at par value and canceled in connection with such exchange and a corresponding number of Class A units of the Partnership were issued to us.
A corresponding number of shares of Class B common stock were automatically redeemed at par value and canceled in connection with such exchange and a corresponding number of Class A units of the Partnership were issued to us.
A corresponding number of shares of Class B common stock were automatically redeemed at par value and canceled in connection with such exchange and a corresponding number of Class A units of the Partnership were issued to us.
Net Income Attributable to Non-Controlling Interests in Subsidiaries Net income attributable to non-controlling interests in subsidiaries increased $3.4 million, or 15%, to $26.6 million for fiscal 2022 as compared to fiscal 2021. The increase was primarily attributable to an increase in income generated by our consolidated subsidiaries not wholly-owned by us.
Net income attributable to non-controlling interests in subsidiaries increased $3.4 million, or 15%, to $26.6 million for fiscal 2022 as compared to fiscal 2021. The increase was primarily attributable to an increase in income generated by our consolidated subsidiaries not wholly-owned by us.
Net Income Attributable to Non-Controlling Interests in Legacy Greenspring Entities Net income attributable to non-controlling interests in legacy Greenspring entities represents the net income or loss attributable to the interests held by the legacy Greenspring general partner entities. We did not acquire any direct economic interests in the legacy Greenspring general partner entities.
Net Income (Loss) Attributable to Non-Controlling Interests in Legacy Greenspring Entities Net income (loss) attributable to non-controlling interests in legacy Greenspring entities represents the net income or loss attributable to the interests held by the legacy Greenspring general partner entities. We did not acquire any direct economic interests in the legacy Greenspring general partner entities.
Net Income Attributable to Non-Controlling Interests in the Partnership Net income attributable to non-controlling interests in the Partnership represents the portion of net income or loss attributable to the interests held by the Class B and Class C unitholders of the Partnership.
Net Income (Loss) Attributable to Non-Controlling Interests in the Partnership Net income (loss) attributable to non-controlling interests in the Partnership represents the portion of net income or loss attributable to the interests held by the Class B and Class C unitholders of the Partnership.
We recognize incentive fee revenue only when these amounts are realized and no longer subject to significant risk of reversal, which is typically at the end of a defined performance period and/or upon expiration of the associated clawback period (i.e., crystallization).
We recognize incentive fee revenue only when these amounts are realized and no longer subject to significant risk of reversal, which is typically at the end of a defined performance period and/or upon expiration of the associated clawback period (i.e., crystallization).
However, clawback terms for incentive fees received prior to crystallization only require the return of amounts on a net of tax basis. Accordingly, the tax-related portion of incentive fees received in advance of crystallization is not subject to clawback and is therefore recognized as revenue immediately upon receipt.
However, clawback terms for incentive fees received prior to crystallization only require the return of amounts on a net of tax basis. Accordingly, the tax-related portion of incentive fees received in advance of crystallization is not subject to clawback and is therefore recognized as revenue immediately upon receipt.
Legacy Greenspring carried interest allocations include the allocation of carried interest to legacy Greenspring general partner entities from limited partners in certain legacy Greenspring funds in which the legacy Greenspring general partner entities hold an equity interest.
Legacy Greenspring carried interest allocations include the allocation of carried interest to legacy Greenspring general partner entities from limited partners in certain legacy Greenspring funds in which the legacy Greenspring general partner entities hold an equity interest.
Accordingly, the amount recognized as carried interest allocation revenue reflects our share of the gains and losses of the associated fund’s underlying investments measured at their then-fair values, relative to the fair values as of the end of the prior period.
Accordingly, the amount recognized as carried interest allocation revenue reflects our share of the gains and losses of the associated fund’s underlying investments measured at their then-fair values, relative to the fair values as of the end of the prior period.
We have historically managed our liquidity and capital resource needs through (a) cash generated from our operating activities, (b) realizations from investment activities, (c) borrowings, interest payments and repayments under credit agreements and other borrowing arrangements, and (d) funding capital commitments to our funds, and funding our growth initiatives, including capital expenditures and acquisitions to expand into new businesses.
We have historically managed our liquidity and capital resource needs through (a) cash generated from our operating activities, (b) realizations from investment activities, (c) borrowings, interest payments and repayments under credit agreements and other borrowing arrangements, (d) funding capital commitments to our funds, and (e) funding our growth initiatives, including capital expenditures and acquisitions to expand into new businesses.
Adjusted Revenues and Adjusted Net Income Year Ended March 31, 2022 Compared to Year Ended March 31, 2021 Adjusted revenues increased $235.4 million, or 66%, to $594.0 million for fiscal 2022 as compared to fiscal 2021, primarily reflecting increases in net management and advisory fees, realized carried interest allocation revenues and incentive fees (including the deferred portion).
Year Ended March 31, 2022 Compared to Year Ended March 31, 2021 Adjusted revenues increased $235.4 million, or 66%, to $594.0 million for fiscal 2022 as compared to fiscal 2021, primarily reflecting increases in net management and advisory fees, realized carried interest allocation revenues and incentive fees (including the deferred portion).
Management and Advisory Fees, Net Management and advisory fees, net, consist of fees received from managing SMAs and focused commingled funds, advisory, data and administrative services, and portfolio analytics and reporting. • Management fees from SMAs are generally based on a contractual rate applied to committed capital or net invested capital under management.
Management and Advisory Fees, Net Management and advisory fees, net, consist of fees received from managing SMAs and focused commingled funds, advisory, data and administrative services, and portfolio analytics and reporting. • Management fees from SMAs are generally based on a contractual rate applied to committed capital or net invested capital.
The incentive fee compensation accrual is based on a number of factors, including the cumulative activity for the period and the distribution of the net proceeds in accordance with the applicable governing agreement.
The incentive fee-related compensation accrual is based on a number of factors, including the cumulative activity for the period and the distribution of the net proceeds in accordance with the applicable governing agreement.
We do not have any direct economic interests in the legacy Greenspring general partner entities and thus are not entitled to any carried interest allocation from certain legacy Greenspring funds.
We do not have any direct economic interests in the legacy Greenspring general partner entities and thus are not entitled to any carried interest allocation from the legacy Greenspring funds.
See note 4 to our consolidated financial statements included elsewhere in this annual report for information on variable interest entities. The diagram below summarizes the ownership structure of the Partnership’s consolidated operations on a fully diluted basis. 80 Table of Contents Segments We operate as one business, a fully-integrated private markets solutions provider.
See note 4 to our consolidated financial statements included elsewhere in this annual report for information on variable interest entities. The diagram below summarizes the ownership structure of the Partnership’s consolidated operations on a fully diluted basis. 81 Table of Contents Segments We operate as one business, a fully-integrated private markets solutions provider.
(4) Interest on debt obligations consists of projected future interest payments for amounts drawn on the Revolver using interest rates in effect as of March 31, 2022 which has been calculated assuming no additional principal payments will be made and outstanding balance will be held until its final maturity date.
(4) Interest on debt obligations consists of projected future interest payments for amounts drawn on the Revolver using interest rates in effect as of March 31, 2023, which has been calculated assuming no additional principal payments will be made and the outstanding balance will be held until its final maturity date.
Unless otherwise indicated, references in this annual report to fiscal 2022, fiscal 2021 and fiscal 2020 are to our fiscal years ended March 31, 2022, 2021 and 2020, respectively. Business Overview We are a global private markets investment firm focused on providing customized investment solutions and advisory, data and administrative services to our clients.
Unless otherwise indicated, references in this annual report to fiscal 2023, fiscal 2022 and fiscal 2021 are to our fiscal years ended March 31, 2023, 2022 and 2021, respectively. Business Overview We are a global private markets investment firm focused on providing customized investment solutions and advisory, data and administrative services to our clients.
The MSCI All Country World Index is a free float-adjusted market capitalization-weighted index of over 2,900 world stocks that is designed to measure the equity market performance of developed and emerging markets. We believe the MSCI All Country World Index is commonly used by private markets investors to evaluate performance.
The MSCI All Country World Index is a free float-adjusted market capitalization-weighted index of nearly 2,900 world stocks that is designed to measure the equity market performance of developed and emerging markets. We believe the MSCI All Country World Index is commonly used by private markets investors to evaluate performance.
The decrease was primarily due to the full repayment of our previously outstanding senior secured term loan (“Term Loan B”) in connection with the IPO in September 2020, partially offset by interest on average outstanding balances under the Revolver during the current period.
The decrease was primarily due to the full repayment of our previously outstanding senior secured term loan in connection with the IPO in September 2020, partially offset by interest on average outstanding balances under the Revolver during the current period.
Other Income (Expense) Year Ended March 31, 2022 Compared to Year Ended March 31, 2021 Investment income increased $9.8 million, or 59%, to $26.2 million for fiscal 2022 as compared to fiscal 2021, primarily reflecting overall changes in the valuations of the underlying investments in the StepStone Funds.
Year Ended March 31, 2022 Compared to Year Ended March 31, 2021 Investment income increased $9.8 million, or 59%, to $26.2 million for fiscal 2022 as compared to fiscal 2021, primarily reflecting overall changes in the valuations of the underlying investments in the StepStone Funds.
The decline in the blended statutory rate for fiscal 2022 compared to fiscal 2021 was due to updates in our state apportionment based on our most recently filed tax returns and is our best estimate of our blended statutory tax rate moving forward.
The decline in the blended statutory rate for fiscal 2023 compared to fiscal 2022 was due to updates in our state apportionment based on our most recently filed tax returns and is our best estimate of our blended statutory tax rate moving forward.
The data for these investments is generally presented from the inception date of each strategy and asset class through December 31, 2021 and have not been adjusted to reflect acquisitions or disposals of investments subsequent to that date.
The data for these investments is generally presented from the inception date of each strategy and asset class through December 31, 2022 and have not been adjusted to reflect acquisitions or disposals of investments subsequent to that date.
Since our inception in 2007, we have invested heavily in our platforms to drive growth and expand our investment solutions capabilities and service offerings, including through opportunistic transactions that have helped accelerate the growth of our team and capabilities.
Since our inception in 2007, we have invested and continue to invest heavily in our platforms to drive growth and expand our investment solutions capabilities and service offerings, including through opportunistic transactions that have helped accelerate the growth of our team and capabilities.
In addition, market dislocations, contractions or volatility could put pressure on our returns in the future which could in turn affect our fundraising abilities. 75 Table of Contents • Our ability to maintain our data advantage relative to competitors.
In addition, market dislocations, contractions or volatility could put pressure on our returns in the future which could in turn affect our fundraising abilities. 76 Table of Contents • Our ability to maintain our data advantage relative to competitors.
There are no corresponding shares of common stock for the Class C units. The diagram below illustrates our organizational structure as of March 31, 2022. Amounts may not sum to total due to rounding.
There are no corresponding shares of common stock for the Class C units. The diagram below illustrates our organizational structure as of March 31, 2023. Amounts may not sum to total due to rounding.
All of the carried interest allocations in respect of such legacy Greenspring funds are payable to employees who are considered affiliates of the Company and are therefore reflected as legacy Greenspring performance fee-related compensation in the consolidated statements of income.
All of the carried interest allocations in respect of such legacy Greenspring funds are payable to employees who are considered affiliates to us and are therefore reflected as legacy Greenspring performance fee-related compensation in the consolidated statements of income .
(3) Investments of former clients are included in performance summary past the client termination date until such time as StepStone stops receiving current investment data (quarterly valuations and cash flows) for the investment.
(4) Investments of former clients are included in performance summary past the client termination date until such time as StepStone stops receiving current investment data (quarterly valuations and cash flows) for the investment.
Most of our advisory fees are fixed, and therefore, increases or decreases in AUA do not necessarily lead to proportionate changes in revenue. Our AUA is calculated as the sum of (i) the NAV of client portfolio assets for which we do not have full discretion and (ii) the unfunded commitments of clients to the underlying investments.
Most of our advisory fees are fixed, and therefore, increases or decreases in AUA do not necessarily lead to proportionate changes in revenue. 87 Table of Contents Our AUA is calculated as the sum of (i) the NAV of client portfolio assets for which we do not have full discretion and (ii) the unfunded commitments of clients to the underlying investments.
For asset management services and the arrangement of administrative services, we satisfy these performance obligations over time because the customer simultaneously receives and consumes the benefits of the services as they are performed. Advisory fees from contracts under which we do not have discretion over investment decisions are generally based on fixed amounts and typically billed quarterly.
For asset management services and the arrangement of administrative services, we satisfy these performance obligations over time because the customer simultaneously receives and consumes the benefits of the services as they are performed. Advisory fees from contracts where we do not have discretion over investment decisions are generally based on fixed amounts and typically billed quarterly.
Incentive fees increased $6.1 million, or 112%, to $11.6 million for fiscal 2022 as compared to fiscal 2021, reflecting higher realization activity and recognition of deferred incentive fees in the current year. Realized carried interest allocation revenues increased $137.8 million, or 219%, to $200.7 million for fiscal 2022, reflecting higher realization activity within our private equity funds.
Incentive fees increased $6.1 million, or 112%, to $11.6 million for fiscal 2022 as compared to fiscal 2021, reflecting higher realization activity and recognition of deferred incentive fees in the current year. 90 Table of Contents Realized carried interest allocation revenues increased $137.8 million, or 219%, to $200.7 million for fiscal 2022, reflecting higher realization activity within our private equity funds.
In both situations, we are acting as an agent because we do not control the services provided by the third parties before they are transferred to the customer. 81 Table of Contents Performance Fees We earn two types of performance fee revenues: incentive fees and carried interest allocations, as described below.
In both situations, we are acting as an agent because we do not control the services provided by the third parties before they are transferred to the customer. Performance Fees We earn two types of performance fee revenues: incentive fees and carried interest allocations, as described below.
Non-controlling interests in subsidiaries are allocated a share of income or loss in the respective consolidated subsidiary in proportion to their relative ownership interests, after consideration of contractual arrangements that govern allocations of income or loss. Non-controlling interests in legacy Greenspring entities represent the economic interests in the legacy Greenspring general partner entities.
Non-controlling interests in subsidiaries are allocated a share of income or loss in the respective consolidated subsidiary in proportion to their relative ownership interests, after consideration of contractual arrangements that govern allocations of income or loss. 86 Table of Contents Non-controlling interests in legacy Greenspring entities represent the economic interests in the legacy Greenspring general partner entities.
The 22.5% rate for fiscal 2022 is based on a federal statutory rate of 21.0% and a combined state, local and foreign rate net of federal benefits of 1.5%. The 22.6% rate for fiscal 2021 is based on a federal statutory rate of 21.0% and a combined state, local and foreign rate net of federal benefits of 1.6%.
The 22.6% rate for fiscal 2021 is based on a federal statutory rate of 21.0% and a combined state, local and foreign rate net of federal benefits of 1.6%.
Management fees are reflected net of certain professional and administrative services and distribution and servicing fees paid to third parties for which we are acting as an agent. 112 Table of Contents Performance Fees We earn two types of performance fee revenues: incentive fees and carried interest allocations, as described below.
Management fees are reflected net of certain professional and administrative services and distribution and servicing fees paid to third parties for which we are acting as an agent. Performance Fees We earn two types of performance fee revenues: incentive fees and carried interest allocations, as described below.
We do not consolidate these StepStone Funds because we are not the primary beneficiary of those funds, primarily because our fee arrangements are considered customary and commensurate and thus not deemed to be variable interests, and we do not hold any other interests in those funds that are considered more than insignificant.
We do not consolidate most of the StepStone Funds that are VIEs because we are not the primary beneficiary of those funds, primarily because our fee arrangements are considered customary and commensurate and thus not deemed to be variable interests, and we do not hold any other interests in those funds that are considered more than insignificant.
Capital commitments in legacy Greenspring funds represent our obligations to provide general partner capital funding in legacy Greenspring funds for which we do not hold any direct economic interests. These amounts are generally due on demand, and accordingly, have been presented as obligations payable in the less than 1 year column.
As a result, we consolidate these entities. Capital commitments in legacy Greenspring funds represent our obligations to provide general partner capital funding in legacy Greenspring funds for which we do not hold any direct economic interests. These amounts are generally due on demand, and accordingly, have been presented as obligations payable in the less than 1 year column.
Carried interest-related compensation expense also includes the portion of net carried interest allocation revenue attributable to equity holders of our consolidated subsidiaries that are not 100% owned by us. Upon a reversal of carried interest allocation revenue, the related compensation expense, if any, is also reversed.
Performance fee-related compensation also includes the portion of carried interest-related compensation expense attributable to equity holders of our consolidated subsidiaries that are not 100% owned by us. Upon a reversal of carried interest allocation revenue, the related compensation expense, if any, is also reversed.
We are a global firm and believe that our multi-asset class expertise, local knowledge, business relationships, proprietary data and technology, and presence are all critical to securing a competitive edge in the private markets. We deploy a local staffing model, operating from 23 cities across 14 countries on five continents.
We are a global firm and believe that our multi-asset class expertise, local knowledge, business relationships, proprietary data and technology, and presence are all critical to securing a competitive edge in the private markets. We deploy a local staffing model, operating from 25 cities across 15 countries on five continents.
Expenses Year Ended March 31, 2022 Compared to Year Ended March 31, 2021 Total expenses increased $453.6 million, or 99%, to $913.2 million for fiscal 2022 as compared to fiscal 2021, reflecting increases in performance fee-related compensation, general, administrative and other expenses, cash-based compensation, equity-based compensation, and the inclusion of legacy Greenspring performance fee-related compensation in the current year.
Year Ended March 31, 2022 Compared to Year Ended March 31, 2021 Total expenses increased $453.6 million, or 99%, to $913.2 million for fiscal 2022 as compared to fiscal 2021, reflecting increases in performance fee-related compensation, general, administrative and other expenses, cash-based compensation, equity-based compensation, and the inclusion of legacy Greenspring performance fee-related compensation in the current year, in each case, as described below.
Fee-Related Earnings Year Ended March 31, 2022 Compared to Year Ended March 31, 2021 FRE increased $32.8 million, or 37%, to $122.2 million for fiscal 2022 as compared to fiscal 2021, primarily reflecting higher net management and advisory fees, partially offset by higher cash-based compensation, general, administrative and other expenses and equity-based compensation.
Year Ended March 31, 2022 Compared to Year Ended March 31, 2021 FRE increased $32.8 million, or 37%, to $122.2 million for fiscal 2022 as compared to fiscal 2021, primarily reflecting higher net management and advisory fees, partially offset by higher adjusted cash-based compensation, adjusted general, administrative and other expenses and adjusted equity-based compensation.
Incentive fees received in advance of crystallization that remain subject to clawback are recorded as deferred incentive fee revenue and included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets. Carried interest allocations include the allocation of performance-based fees to us from limited partners in the StepStone Funds in which we hold an equity interest.
Incentive fees received in advance of crystallization that remain subject to clawback are recorded as deferred incentive fee revenue and included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets. 83 Table of Contents Carried interest allocations include the allocation of performance-based fees, commonly referred to as carried interest, to us from limited partners in the StepStone Funds in which we hold an equity interest.
Carry awards to employees and other participants are accounted for as a component of compensation and benefits expense contemporaneously with our recognition of the related realized and unrealized carried interest allocation revenue and, until paid, is included in accrued carried interest-related compensation in the consolidated balance sheets.
Carry awards to employees and other participants are accounted for as a component of compensation and benefits expense in conjunction with our recognition of the related realized and unrealized carried interest allocation revenue and, until paid, is recorded as accrued carried interest-related compensation in the consolidated balance sheets.
The decline in the blended statutory rate for fiscal 2021 compared to fiscal 2020 was due to updates in our state apportionment.
The decline in the blended statutory rate for fiscal 2022 compared to fiscal 2021 was due to updates in our state apportionment.
As of March 31, 2022 and 2021, no material amounts for potential clawback obligations had been accrued. Expenses Cash-based compensation primarily includes salaries, bonuses, employee benefits and employer-related payroll taxes. Equity-based compensation represents grants of equity related awards or arrangements to certain employees and directors.
As of March 31, 2023 and 2022, no material amounts for potential clawback obligations had been accrued. Expenses Cash-based compensation primarily includes salaries, bonuses, employee benefits and employer-related payroll taxes. 84 Table of Contents Equity-based compensation represents grants of equity related awards or arrangements to certain employees and directors.
AUM as of March 31, 2022 reflects final data for the prior period (December 31, 2021), adjusted for net new client account activity through March 31, 2022. NAV data for underlying investments is as of December 31, 2021, as reported by underlying managers up to 115 days following December 31, 2021.
AUM as of March 31, 2023 reflects final data for the prior period (December 31, 2022), adjusted for net new client account activity through March 31, 2023. NAV data for underlying investments is as of December 31, 2022, as reported by underlying managers up to 114 days following December 31, 2022.
AUA as of March 31, 2022 reflects final data for the prior period (December 31, 2021), adjusted for net new client account activity through March 31, 2022. NAV data for underlying investments is as of December 31, 2021, as reported by underlying managers up to 115 days following December 31, 2021.
AUA as of March 31, 2023 reflects final data for the prior period (December 31, 2022), adjusted for net new client account activity through March 31, 2023. NAV data for underlying investments is as of December 31, 2022, as reported by underlying managers up to 114 days following December 31, 2022.
Multiple of Invested Capital is presented net of management fees, carried interest and expenses charged by underlying fund managers, but gross of StepStone’s management fees, performance fees and expenses; • “IRR” refers to the annualized internal rate of return for all investments within the relevant investment strategy on an inception-to-date basis as of December 31, 2021 (except as noted otherwise below), based on contributions, distributions and unrealized value; • “Gross IRR” refers to IRR net of management fees, performance fees and expenses charged by the underlying fund managers, but gross of StepStone’s management fees, performance fees and expenses; • “Net IRR” refers to IRR net of fees and expenses charged by both the underlying fund managers and StepStone; • “MSCI ACWI Direct Alpha” refers to the MSCI All Country World Index, calculated on a Public Market Equivalent Plus basis, the benchmark index used for comparison below.
Multiple of Invested Capital is presented net of management fees, carried interest and expenses charged by underlying fund managers, as well as StepStone’s management fees, performance fees and expenses; • “IRR” refers to the annualized internal rate of return for all investments within the relevant investment strategy on an inception-to-date basis as of December 31, 2022 (except as noted otherwise below), based on contributions, distributions and unrealized value; • “Gross IRR” refers to IRR net of management fees, performance fees and expenses charged by the underlying fund managers, but gross of StepStone’s management fees, performance fees and expenses; • “Net IRR” refers to IRR net of fees and expenses charged by both the underlying fund managers and StepStone; • “MSCI ACWI Direct Alpha” refers to the MSCI All Country World Index, the benchmark index used for comparison below.
For the purposes of the following tables: • “Invested capital” refers to the total amount of all investments made by a fund, including commitment-reducing and non-commitment-reducing capital calls; • “NAV” refers to the estimated fair value of unrealized investments plus any net assets or liabilities associated with the investment as of December 31, 2021; 100 Table of Contents • “Multiple of Invested Capital” refers to (a) the sum of Realized Distributions from underlying investments to the fund plus the fund’s NAV, divided by (b) Cumulative Invested Capital.
For the purposes of the following tables: • “Invested capital” refers to the total amount of all investments made by a fund, including commitment-reducing and non-commitment-reducing capital calls; 102 Table of Contents • “NAV” refers to the estimated fair value of unrealized investments plus any net assets or liabilities associated with the investment as of December 31, 2022; • “Net Multiple of Invested Capital” refers to (a) the sum of Realized Distributions from underlying investments to the fund plus the fund’s NAV, divided by (b) Cumulative Invested Capital.
SMAs, including directly managed assets, comprised $79 billion of our AUM as of March 31, 2022. • Focused commingled funds. Owned by multiple clients, our focused commingled funds deploy capital in specific asset classes with defined investment strategies.
SMAs, including directly managed assets, comprised $82 billion of our AUM as of March 31, 2023. • Focused commingled funds. Owned by multiple clients, our focused commingled funds deploy capital in specific asset classes with defined investment strategies.
Equity-based compensation increased $6.1 million, or 77%, to $14.0 million for fiscal 2022 as compared to fiscal 2021. The increase was attributable to the grant of restricted stock units (“RSUs”) made to certain employees and directors in connection with our IPO in September 2020.
Equity-based compensation increased $6.1 million, or 77%, to $14.0 million for fiscal 2022 as compared to fiscal 2021. The increase was attributable to the grant of RSUs made to certain employees and directors in connection with our IPO in September 2020.
The transaction agreement includes an earn-out of up to $75 million that is payable in 2025 subject to the achievement of certain management fee revenue targets for calendar year 2024. Future cash payments represent the fair values as of March 31, 2022.
The transaction agreement provides for the payment of an earn-out of up to $75 million that is payable in 2025 subject to the achievement of certain management fee revenue targets for calendar year 2024. Future cash payments represent the fair values as of March 31, 2023.
The economic rights of our Class B common stock are limited to the right to be redeemed at par value. 79 Table of Contents A “Sunset” is triggered upon the earliest to occur of the following: (i) Monte Brem, Scott Hart, Jason Ment, Jose Fernandez, Johnny Randel, Michael McCabe, Mark Maruszewski, Thomas Keck, Thomas Bradley, David Jeffrey and Darren Friedman (including their respective family trusts and any other permitted transferees, the “Sunset Holders”) collectively cease to maintain direct or indirect beneficial ownership of at least 10% of the outstanding shares of Class A common stock (determined assuming all outstanding Class B units have been exchanged for Class A common stock); (ii) the Sunset Holders cease collectively to maintain direct or indirect beneficial ownership of an aggregate of at least 25% of the aggregate voting power of our outstanding Class A common stock and Class B common stock, before giving effect to a Sunset; and (iii) September 18, 2025.
A “Sunset” is triggered upon the earliest to occur of the following: (i) Monte Brem, Scott Hart, Jason Ment, Jose Fernandez, Johnny Randel, Michael McCabe, Mark Maruszewski, Thomas Keck, Thomas Bradley, David Jeffrey and Darren Friedman (including their respective family trusts and any other permitted transferees, the “Sunset Holders”) collectively cease to maintain direct or indirect beneficial ownership of at least 10% of the outstanding shares of Class A common stock (determined assuming all outstanding Class B units have been exchanged for Class A common stock); (ii) the Sunset Holders cease collectively to maintain direct or indirect beneficial ownership of an aggregate of at least 25% of the aggregate voting power of our outstanding Class A common stock and Class B common stock, before giving effect to a Sunset; and (iii) September 18, 2025.
The variability and availability of the observable inputs affected by the factors described above may result in transfers between Levels I, II, and III. 114 Table of Contents We consider our cash, cash equivalents, restricted cash, fees and accounts receivable, accounts payable, investments, revolving credit facility and contingent consideration balances to be financial instruments.
The variability and availability of the observable inputs affected by the factors described above may result in transfers between Levels I, II, and III. We consider our cash, cash equivalents, restricted cash, fees and accounts receivable, accounts payable, investments, revolving credit facility, contingent consideration and liability classified award balances to be financial instruments.
Secondaries: 125 basis points (60 basis points for Infrastructure) on capital commitments in years 1 through 4 for management fee. In year 5, management fees step down to 90% of the previous year’s fee.
Secondaries: 125 basis points (60 basis points for infrastructure) of capital commitments in years 1 through 4 for management fees, charged quarterly. In year 5, management fees step down to 90% of the previous year’s fee. iii.
The weighted-average management fee rate from SMAs was approximately 0.39% and 0.40% of average FEAUM in fiscal 2021 and 2022, respectively. • Management fees from focused commingled funds are generally based on a specified fee rate applied against client capital commitments during a defined investment or commitment period.
The weighted-average management fee rate from SMAs was approximately 0.40% and 0.40% of average FEAUM in fiscal 2022 and 2023, respectively. 82 Table of Contents • Management fees from focused commingled funds are generally based on a specified fee rate applied against client capital commitments during a defined investment or commitment period.
As of March 31, 2022 2021 Weighted-average fee rate (1) Private equity (2) 0.64 % 0.62 % Real estate, infrastructure and private debt asset classes (3) 0.40 % 0.42 % Total 0.52 % 0.52 % _______________________________ (1) Weighted-average fee rates reflect the applicable management fees for the last 12 months ending on each period presented, and is inclusive of any retroactive fees for such period.
As of March 31, 2023 2022 Weighted-average fee rate (1) Private equity (2) 0.66 % 0.64 % Real estate, infrastructure and private debt asset classes (3) 0.41 % 0.40 % Total 0.54 % 0.52 % _______________________________ (1) Weighted-average fee rates reflect the applicable management fees for the last 12 months ending on each period presented, and is inclusive of any retroactive fees for such period.
As a result, all of the net income or loss related to the legacy Greenspring general partner entities is allocated to non-controlling interests in legacy Greenspring entities. Net income attributable to non-controlling interests in legacy Greenspring entities was $32.6 million for fiscal 2022.
As a result, all of the net income or loss related to the legacy Greenspring general partner entities is allocated to non-controlling interests in legacy Greenspring entities. Net income (loss) attributable to non-controlling interests in legacy Greenspring entities was $(44.1) million and $32.6 million for fiscal 2023 and 2022, respectively.
The 22.5% rate for fiscal 2022 is based on a federal statutory rate of 21.0% and a combined state, local and foreign rate net of federal benefits of 1.5%. The 22.6% rate for fiscal 2021 is based on a federal statutory rate of 21.0% and a combined state, local and foreign rate net of federal benefits of 1.6%.
The 22.3% rate for fiscal 2023 is based on a federal statutory rate of 21.0% and a combined state, local and foreign rate net of federal benefits of 1.3%. The 22.5% rate for fiscal 2022 is based on a federal statutory rate of 21.0% and a combined state, local and foreign rate net of federal benefits of 1.5%.
When NAV data is not available by 115 days following December 31, 2021, such NAVs are adjusted for cash activity following the last available reported NAV. 85 Table of Contents Assets Under Advisement AUA consists of client assets for which we do not have full discretion to make investment decisions but play a role in advising the client or monitoring their investments.
When NAV data is not available 114 days following December 31, 2022, such NAVs are adjusted for cash activity following the last available reported NAV. Assets Under Advisement AUA consists of client assets for which we do not have full discretion to make investment decisions but play a role in advising the client or monitoring their investments.
The weighted-average management fee rate from focused commingled funds was approximately 0.90% and 0.85% of average FEAUM in fiscal 2021 and 2022, respectively, and primarily reflected the timing of new funds and shifts in asset class mix. • The weighted-average management fee rate across SMAs and focused commingled funds was approximately 0.52% and 0.52% of average FEAUM in fiscal 2021 and 2022, respectively. • Fee revenues from advisory, SPAR, SPI or administrative services are generally annual fixed fees, which vary based on the scope of services we provide.
The weighted-average management fee rate from focused commingled funds was approximately 0.85% and 0.82% of average FEAUM in fiscal 2022 and 2023, respectively, and primarily reflected shifts in asset class mix and the impact of the Greenspring acquisition. • The weighted-average management fee rate across SMAs and focused commingled funds was approximately 0.52% and 0.54% of average FEAUM in fiscal 2022 and 2023, respectively, and primarily reflected the timing of new funds and shifts in mix between SMAs and focused commingled funds. • Fee revenues from advisory, SPAR, SPI or administrative services are generally annual fixed fees, which vary based on the scope of services we provide.
Further, if fund managers are unable or less able to profitably exit existing investments, such conditions could result in delayed or decreased performance fee revenues. It is currently not possible to predict the ultimate effects of these events on the financial markets, overall economy and our consolidated financial statements.
Further, fund managers have been unable or less able to profitably exit existing investments, such conditions have resulted in, and may continue to result in, delayed or decreased performance fee revenues. It is currently not possible to predict the ultimate effects of these events on the financial markets, overall economy and our consolidated financial statements.
Advisory relationships comprised $436 billion of our AUA and $12 billion of our AUM as of March 31, 2022. • Portfolio analytics and reporting. We provide clients with tailored reporting packages, including customized performance benchmarks as well as associated compliance, administrative and tax capabilities.
Advisory relationships comprised $482 billion of our AUA and $13 billion of our AUM as of March 31, 2023. • Portfolio analytics and reporting. We provide clients with tailored reporting packages, including customized performance benchmarks as well as associated compliance, administrative and tax capabilities.
As of March 31, 2022 the Sunset Holders collectively maintained direct or indirect beneficial ownership of approximately 31.3% of the Class A common stock (determined assuming all outstanding Class B units have been exchanged for Class A common stock) and approximately 55.9% of the aggregate voting power of our outstanding Class A common stock and Class B common stock.
As of March 31, 2023 the Sunset Holders collectively maintained direct or indirect beneficial ownership of approximately 30.9% of the Class A common stock (determined assuming all outstanding Class B units have been exchanged for Class A common stock) and approximately 56.2% of the aggregate voting power of our outstanding Class A common stock and Class B common stock.
Interest income decreased $0.1 million, or 18%, to $0.3 million for fiscal 2022 as compared to fiscal 2021. 91 Table of Contents Interest expense decreased $6.2 million, or 85%, to $1.1 million for fiscal 2022 as compared to fiscal 2021.
Interest income decreased $0.1 million, or 18%, to $0.3 million for fiscal 2022 as compared to fiscal 2021. Interest expense decreased $6.2 million, or 85%, to $1.1 million for fiscal 2022 as compared to fiscal 2021.
Assets Under Advisement Assets related to our advisory accounts were $229 billion as of March 31, 2020, $340 billion as of March 31, 2021 and $436 billion as of March 31, 2022.
Assets Under Advisement Assets related to our advisory accounts were $340 billion as of March 31, 2021, $436 billion as of March 31, 2022 and $482 billion as of March 31, 2023.
The Credit Agreement also contains financial covenants requiring us to maintain a total net leverage ratio, and a minimum total of fee-earning assets under management beginning with the quarter ending December 31, 2021. As of March 31, 2022, we were in compliance with the total net leverage ratio and minimum fee-earning assets under management covenants.
The Credit Agreement also contains financial covenants requiring us to maintain a total net leverage ratio, and a minimum total of fee-earning assets under management. As of March 31, 2023, we were in compliance with the total net leverage ratio and minimum fee-earning assets under management covenants.
In December 2021, we issued 935,235 shares of Class A common stock to certain limited partners of the Partnership in exchange for 935,235 Class B units in accordance with elective exchange notices submitted pursuant to the Class B Exchange Agreement.
In December 2022, we issued 296,756 shares of Class A common stock to certain limited partners of the Partnership in exchange for 296,756 Class B units in accordance with elective exchange notices submitted pursuant to the Class B Exchange Agreement.
Investment returns are calculated on a constant currency adjusted reporting basis converting non-USD investment cash flows and NAVs to USD using the foreign currency exchange rate corresponding to each client’s first cash flow date. (6) Includes asset management investments.
USD returns for StepStone recommended investments are calculated on a constant currency adjusted USD reporting basis converting non-USD investment cash flows and NAVs to USD using the foreign currency exchange rate corresponding to each client’s first cash flow date.
As of March 31, 2022, we were required to maintain approximately $7.6 million in net capital at these subsidiaries and were in compliance with all regulatory minimum net capital requirements. 109 Table of Contents Contractual Obligations and Commitments In the ordinary course of business, we enter into contractual arrangements that require future cash payments.
As of March 31, 2023, we were required to maintain approximately $15.8 million in net capital at these subsidiaries and were in compliance with all regulatory minimum net capital requirements. Contractual Obligations and Commitments In the ordinary course of business, we enter into contractual arrangements that require future cash payments.
The interest rate in effect for the Revolver as of March 31, 2022 was 2.50%. Borrowings under the Revolver may be repaid at any time during the term of the Credit Agreement and, subject to certain terms and conditions, may be reborrowed prior to the maturity date.
The weighted-average interest rate in effect for the Revolver as of March 31, 2023 was 6.86%. Borrowings under the Revolver may be repaid at any time during the term of the Credit Agreement and, subject to certain terms and conditions, may be reborrowed prior to the maturity date.
The increase was primarily due to the additional U.S. federal and state income taxes recognized on our share of taxable income generated by the Partnership as a result of our increased ownership in the Partnership, partially offset by the release of a valuation allowance during the current year as a result of the Greenspring acquisition.
The increase was primarily due to the additional U.S. federal and state income taxes recognized on our share of taxable income generated by the Partnership as a result of our increased ownership in the Partnership, partially offset by a benefit of $25.3 million related to the release of a valuation allowance during fiscal 2022 as a result of the Greenspring acquisition.
When NAV data is not available by 115 days following December 31, 2021, such NAVs are adjusted for cash activity following the last available reported NAV.
When NAV data is not available 114 days following December 31, 2022, such NAVs are adjusted for cash activity following the last available reported NAV.
At that point, StepStone will then ‘liquidate’ the fund by entering a distribution amount equal to the last reported NAV, thus ending its contribution to the track record as of that date. Historical performance contribution will be maintained up until the ‘liquidation’ date.
At that point, StepStone will then ‘liquidate’ the fund by entering a distribution amount equal to the last reported NAV, thus ending its contribution to the track record as of that date.
In September 2021, we issued 2,087,281 shares of Class A common stock to certain limited partners of the Partnership in exchange for 2,087,281 Class B units in accordance with elective exchange notices submitted pursuant to the Class B Exchange Agreement.
In September 2022, we issued 175,000 shares of Class A common stock to certain limited partners of the Partnership in exchange for 175,000 Class B units in accordance with elective exchange notices submitted pursuant to the Class B Exchange Agreement.
Legacy Greenspring carried interest-related compensation expense may be subject to reversal to the extent that the related legacy Greenspring carried interest allocation revenue is reversed.
Legacy Greenspring carried interest-related compensation expense may be subject to reversal to the extent that the related legacy Greenspring carried interest allocation revenue is reversed. However, none of the legacy Greenspring carried interest allocation revenue is attributable to the Company.
Undeployed Fee-Earning Capital Undeployed fee-earning capital represents the amount of capital commitments to StepStone Funds that has not yet been invested or considered active but will generate management fee revenue once this capital is invested or activated. Non-GAAP Financial Measures Below is a description of our non-GAAP financial measures.
Undeployed Fee-Earning Capital Undeployed fee-earning capital represents the amount of capital commitments to StepStone Funds that has not yet been invested or considered active but will generate management fee revenue once this capital is invested or activated.
All of the carried interest allocations in respect of the legacy Greenspring funds are payable to employees who are considered affiliates to us and are therefore reflected as legacy Greenspring performance fee-related compensation in the consolidated statements of income. Accordingly, legacy Greenspring carried interest allocations are not deemed to be within the scope of ASC 606.
All of the carried interest allocations in respect of the legacy Greenspring funds are payable to employees who are considered affiliates to us and are therefore reflected as legacy Greenspring performance fee-related compensation in the consolidated statements of income.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeExchange Rate Risk Our business is affected by movements in the exchange rate between the U.S. dollar and non-U.S. dollar currencies in respect of revenues and expenses of our foreign offices that are denominated in non-U.S. dollar currencies and cash and other balances we hold in non-functional currencies.
Biggest changeBased on investments (excluding legacy Greenspring investments in funds and investments of Consolidated Funds) held as of March 31, 2023 and 2022, we estimate that a 10% decline in fair value of the investments in funds and investments, at fair value, of Consolidated Funds would result in a decrease in investment income of $11.5 million and $10.7 million, respectively. 120 Table of Contents Exchange Rate Risk Our business is affected by movements in the exchange rate between the U.S. dollar and non-U.S. dollar currencies in respect of revenues and expenses of our foreign offices that are denominated in non-U.S. dollar currencies and cash and other balances we hold in non-functional currencies.
Potentially negative effects of these risks may be mitigated to a certain extent by those aspects of our investment approach, investment strategies, fundraising practices or other business activities that are designed to benefit, either in relative or absolute terms, from periods of economic weakness, tighter credit markets or financial market dislocations. 116 Table of Contents Market Risk Our predominant exposure to market risk is related to our role as general partner or investment manager for our focused commingled funds and SMAs and the sensitivities to movements in the fair value of their investments, which may adversely affect our performance fee revenues and investment income.
Potentially negative effects of these risks may be mitigated to a certain extent by those aspects of our investment approach, investment strategies, fundraising practices or other business activities that are designed to benefit, either in relative or absolute terms, from periods of economic weakness, tighter credit markets or financial market dislocations. 119 Table of Contents Market Risk Our predominant exposure to market risk is related to our role as general partner or investment manager for our focused commingled funds and SMAs and the sensitivities to movements in the fair value of their investments, which may adversely affect our performance fee revenues and investment income.
We generally endeavor to minimize our risk of exposure by limiting the counterparties with which we enter into financial transactions to reputable financial institutions. In other circumstances, availability of financing from financial institutions may be uncertain due to market events, and we may not be able to access these financing markets. 118 Table of Contents
We generally endeavor to minimize our risk of exposure by limiting the counterparties with which we enter into financial transactions to reputable financial institutions. In other circumstances, availability of financing from financial institutions may be uncertain due to market events, and we may not be able to access these financing markets. 121 Table of Contents
Our management fee and advisory fee revenue is only marginally affected by changes in investment values because our management fees are generally based on commitments or net invested capital and our advisory fees are fixed. As of March 31, 2022, NAV-based management fees represented approximately 3% of total net management and advisory fees.
Our management fee and advisory fee revenue is only marginally affected by changes in investment values because our management fees are generally based on commitments or net invested capital and our advisory fees are fixed. As of March 31, 2023 and 2022 , NAV-based management fees represented approximately 7% and 3%, respectively, of total net management and advisory fees.
As of March 31, 2022, we had $14.2 million of deferred incentive fee revenue recorded in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets. • We earn carried interest allocation revenue from certain of the StepStone Funds based on cumulative fund performance to date, subject to specified performance criteria.
As of March 31, 2023 and 2022, we had $18.1 million and $14.2 million, respectively, of deferred incentive fee revenue recorded in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets. • We earn carried interest allocation revenue from certain of the StepStone Funds based on cumulative fund performance to date, subject to specified performance criteria.
We estimate that a 10% decline in market values of the investments held in our funds as of March 31, 2022 would result in an approximate $1.5 million decrease to annual management fees.
We estimate that a 10% decline in market values of the investments held in our funds as of March 31, 2023 and 2022 would result in an approximate decrease to annual management fees of $3.4 million and $1.5 million, respectively.
Based on the $117.4 million of cash, cash equivalents and restricted cash as of March 31, 2022, we estimate that interest income would increase by $1.2 million on an annualized basis as a result of a 100 basis point increase in interest rates.
Based on the $103.5 million and $117.4 million of cash, cash equivalents and restricted cash (excluding Consolidated Funds) as of March 31, 2023 and 2022, respectively, we estimate that interest income would increase by $1.0 million and $1.2 million, respectively, on an annualized basis as a result of a 100 basis point increase in interest rates.
The Revolver accrues interest at a variable rate. As of March 31, 2022, we estimate that interest expense would increase by $0.7 million on an annualized basis as a result of a 100 basis point increase in interest rates.
As of March 31, 2023 and 2022, we estimate that interest expense would increase by $1.0 million and $0.7 million, respectively, on an annualized basis as a result of a 100 basis point increase in interest rates.
The currency exposure related to investments in foreign currency assets is limited to our general partner interest, which is typically no more than 1% of total capital commitments. Changes in exchange rates are not expected to materially affect our consolidated financial statements. Interest Rate Risk As of March 31, 2022, we had $65.0 million in borrowings outstanding under our Revolver.
The currency exposure related to investments in foreign currency assets is limited to our general partner interest, which is typically no more than 1% of total capital commitments. Changes in exchange rates are not expected to materially affect our consolidated financial statements.
Therefore, changes in exchange rates are not expected to materially affect our consolidated financial statements. 117 Table of Contents Certain of our focused commingled funds and SMAs hold investments denominated in non-U.S. dollar currencies that may be affected by movements in the exchange rate between the U.S. dollar and foreign currencies, which could affect investment performance.
Certain of our focused commingled funds and SMAs hold investments denominated in non-U.S. dollar currencies that may be affected by movements in the exchange rate between the U.S. dollar and foreign currencies, which could affect investment performance.
As of March 31, 2022, the maximum amount of carried interest allocations (excluding legacy Greenspring carried interest allocations) subject to contingent repayment was an estimated $204.8 million, net of tax, assuming the fair value of all investments was zero, a possibility that we view as remote. • Investment income changes in relation to realized and unrealized gains and losses of the underlying investments in our funds in which we have a general partner commitment.
As of March 31, 2023 and 2022, the maximum amount of carried interest allocations (excluding legacy Greenspring carried interest allocations) subject to contingent repayment, net of tax, was an estimated $264.1 million and $204.8 million, respectively, assuming the fair value of all investments was zero, a possibility that we view as remote.
The amount of revenues and expenses attributable to our foreign offices is not material in relation to our U.S. offices.
The amount of revenues and expenses attributable to our foreign offices is not material in relation to our U.S. offices. Therefore, changes in exchange rates are not expected to materially affect our consolidated financial statements.
Removed
Based on investments (excluding legacy Greenspring investments in funds) held as of March 31, 2022, we estimate that a 10% decline in fair value of the investments would result in a $10.7 million decrease in the amount of income.
Added
The primary driver for the change in the contingent repayment between periods is due to additional carried interest allocation realizations in fiscal 2023 that are potentially subject to clawback. • Investment income changes in relation to realized and unrealized gains and losses of the underlying investments in our funds in which we have a general partner commitment.
Added
Interest Rate Risk As of March 31, 2023 and 2022, we had $100.0 million and $65.0 million, respectively, in borrowings outstanding under our Revolver. The Revolver accrues interest at a variable rate.

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