$23.00
$67.00
bear $23.00
base $51.00
bull $67.00
margin of safety $30.00
market price* $41.64
StepStone is a global private-markets investment firm. It builds and manages customized private equity, infrastructure, private debt and real estate portfolios for large pension funds, sovereign wealth funds and insurers, mostly through separately managed accounts and commingled funds, and it sells evergreen funds such as SPRIM and SPRING to individual investors through its private wealth arm (SPW, now over $21 billion of assets). Most of its income is management and advisory fees on client capital locked up for many years: fee revenue grew from about $585 million in fiscal 2024 to about $927 million in fiscal 2026 (years end March 31). On top of that it earns carried interest and incentive fees when investments do well, which swing with markets. Why the reported results show large losses. StepStone reported a net loss of about $536 million in fiscal 2026 and $180 million in fiscal 2025. Almost all of that is a non-cash charge to revalue a promised buyout of the profits interest that SPW's management team received in 2022. The underlying business does make money, but less than headline growth suggests, because a large share of what it earns belongs to other people. In fiscal 2026 about $218 million of profit went to minority owners of StepStone's subsidiaries: about $136 million to the SPW management team and about $81 million to employees and partners who own stakes in the real assets, real estate and private debt units. In addition, roughly half of realized carried interest and incentive fees is paid to staff as performance compensation. What the business earns for its owners. We measured earnings available to all owners of the operating partnership, treating each partnership unit as one share, since units can be exchanged one-for-one for public shares. We started from reported pre-tax income, added back charges that are not cash (the SPW revaluation, amortization of acquired intangibles, and unrealized carried interest net of the compensation that would be paid on it), deducted the minority owners' shares, replaced depreciation with the capital spending needed to maintain the business, and applied the company's blended corporate tax rate of about 22.6% as if all units had been exchanged. On that basis owner earnings were about $1.63 per share in fiscal 2022, $1.23 in fiscal 2023, $1.15 in fiscal 2024 (the low point after the 2022 private-markets downturn, when realized carried interest fell from about $201 million to $49 million), $2.07 in fiscal 2025 and $2.19 in fiscal 2026. We anchored on $2.07, the middle of the last three years, which spans that downturn and the recovery. Fiscal 2026 was helped by about $220 million of incentive fees from the evergreen funds, up from about $40 million the year before; these depend on fund returns and we did not treat that level as permanent. Reported operating cash flow is not a useful guide here, because StepStone consolidates certain client funds whose purchases and sales of investments run through its cash flow statement. On a cash basis our figures agree within about 6-8% in fiscal 2024 and 2025; in fiscal 2026 the cash measure runs about 19% higher, a gap we could not fully trace and which coincides with about $812 million of newly consolidated funds, so we did not rely on it. What StepStone owes. The partnership owes $275 million: $175 million of 5.52% senior notes due October 2029 and $100 million drawn on its revolving credit facility. The larger obligation is the SPW buyout. The SPW team has been able to require StepStone to buy its profits interest since June 30, 2026, and StepStone can force the purchase from the end of June 2027; management has said it intends to buy as soon as it is permitted. The price is set by a formula: SPW's adjusted net income multiplied by StepStone's own trading multiple. StepStone carried the obligation at about $2.27 billion at March 31, 2026, and the jump in accrued compensation during the June quarter suggests roughly $2.55 billion by June 30. StepStone may pay up to 75% of it in newly issued partnership units rather than cash, which spreads the cost to shareholders through dilution instead of debt, but the cost is the same either way. Because the settlement also carries tax-sharing rights for the SPW team, StepStone keeps little of the tax deduction it creates. Once settled, StepStone stops paying the SPW team its share of SPW profits (about $136 million in fiscal 2026), which offsets much of the cost: at today's formula the buyout is roughly a fair exchange, and our base value is similar whether or not it happens. The issue is its size, about nine years of current owner earnings, and that the team can choose to lock in the price while the business is strong. StepStone Group's own shareholders' equity was negative $539 million at June 30, 2026, reflecting this obligation. Base case, about $51 per share. Owner earnings grow 5% in the first year, slightly below the 5.7% achieved in fiscal 2026, then about 7% a year, in line with the roughly 7.7% a year achieved from fiscal 2022 to 2026 through a downturn, tapering to 3% by year ten as the business matures. This growth is the continuation of StepStone's long record of raising successor funds from existing institutional clients and steady private wealth subscriptions; we did not credit new products, new markets or fee-rate increases. From the second year we add back the SPW team's share of profits that the buyout ends, and we subtract a buyout of about $2.7 billion. The business is worth about $73 per share, less about $20 for the SPW buyout and $2 for borrowings. Bear case, about $23 per share. A repeat of the 2022-2024 private-markets downturn, when owner earnings per share fell about 30% and realized carried interest nearly disappeared: earnings fall to about $1.40 a share for two years, evergreen-fund incentive fees vanish, and recovery takes most of the decade. The SPW team locks in its buyout at today's high level, about $2.6 billion, and StepStone pays much of it in new units issued at depressed prices. The business is worth about $44 per share, less about $19 for the SPW buyout and $2 for borrowings. Interest on the $275 million of debt remains easily covered throughout. Bull case, about $67 per share. StepStone's fundraising keeps its recent pace for longer, with owner earnings growing 8-10% a year for five years before tapering, and the SPW buyout settles higher, about $3.2 billion, because SPW's own profits keep growing. The business is worth about $92 per share, less about $23 for the SPW buyout and $2 for borrowings. Things we did not add. StepStone holds about $201 million of its own cash, about $264 million of investments alongside clients in its funds, and roughly $930 million of accrued carried interest net of the compensation owed on it. We did not add these on top of the cases: the cash is needed to fund the cash part of the SPW buyout and day-to-day operations, the fund investments already produce the investment income in our earnings figures, and future carried interest is already reflected in the earnings record we projected. We also did not subtract the $344 million owed to former owners under tax receivable agreements, because we charged full corporate tax without crediting the tax savings those payments come from. Why the margin-of-safety price is around $30. We are moderately confident in the earnings level: the comparable record is only five years long, and a growing part of profit comes from incentive fees that depend on markets. The worst plausible outcome is a private-markets slump arriving at the same time as a $2.5-3 billion buyout that the SPW team can lock in near the peak, forcing StepStone to borrow heavily or issue many new shares at low prices. The business would survive this, because its core is recurring fees on client capital that cannot easily leave, and its debt is modest, but per-share value would take a heavy hit. The things we are most likely to be wrong about are the final size of the SPW buyout, how much of the private wealth incentive fees prove recurring, and whether the SPW team has to be paid generously again after the buyout to keep it. If all three prove wrong, the shares are worth something close to the bear case. Shareholders received roughly $1.40-1.50 a share in dividends last year, including a supplemental payment. From a margin-of-safety price of about $30 and an assumed four-to-five-year holding period, the base-case path plus dividends implies roughly 20% a year, while the bear case implies a modest loss rather than a permanent wipeout. Above that price, the size and timing of the SPW obligation leave too little room for error. Changes since our previous analysis. The previous figures were prepared on a different basis and are not comparable. Since then the SPW buyout obligation has grown to an estimated $2.55 billion, the SPW team's right to require the buyout has opened, and management has said it will buy the interest at the first opportunity in 2027.