StepStone Group (STEP) Navigates Volatility with 29% Fee Growth and Record Margins – A Buy for Long-Term Private Markets Exposure

In a quarter marked by market turbulence, StepStone Group (STEP) delivered a performance that underscores its resilience and strategic positioning in private markets. The company's Q4 2025 results reveal robust fee-earning asset growth, record-breaking FRE margins, and a thriving private wealth platform—all while addressing risks tied to carry dynamics and competition. Here's why investors should consider this as a compelling buy for the long term.

Growth Drivers: The Fuel for StepStone's Momentum

StepStone's fee-earning assets under management (AUM) surged to $121.4 billion, a 29% year-over-year jump, driven by strong fundraising and organic growth. This expansion is not just a number; it reflects the firm's ability to attract institutional and private wealth investors amid volatile markets. The company closed three commingled funds exceeding $3 billion each, contributing to over $31 billion in raised AUM for the fiscal year—a testament to its product diversification and client trust.

The Fee-Related Earnings (FRE) hit a record $94.1 million in Q4, up 85% year-over-year, with a 44% margin—the highest on record. This margin expansion signals operational efficiency, as StepStone scales its platform without proportionate cost increases. The blended management fee rate held steady at 65 basis points, indicating no margin erosion despite growth.

Resilience in Private Wealth: A Strategic Differentiator

The private wealth segment is a standout success. Assets under management here doubled to over $8 billion, up from $3.4 billion a year ago, fueled by new product launches and expanded distribution channels. This segment's growth highlights StepStone's ability to cater to high-net-worth individuals and family offices—a market with strong long-term demand.

Even as private markets face widening bid-ask spreads and volatility, StepStone's $24.6 billion in undeployed fee-earning capital provides a liquidity buffer to seize opportunities. The company's exposure to $709 billion in total capital (including $189 billion of AUM) across private equity, real estate, and infrastructure further diversifies its revenue streams, reducing reliance on any single asset class.

Addressing Risks: Carry Declines and Competition

No story is without challenges. The net accrued carry dipped 1% quarter-over-quarter to $738 million, though it rose 16% year-over-year. This short-term dip is attributable to delayed realizations in a volatile private market environment, where widening spreads have slowed distribution pipelines. However, the annual growth trend remains positive, and StepStone's $81 million in gross realized performance fees in Q4 underscores its ability to monetize carry over time.

Competition in private wealth is intensifying, with new entrants launching similar products. Yet StepStone's scale and diversified client base—including pension funds and sovereign wealth investors—position it as a leader. Its $1.36 per share annual dividend (up 37% from 2024) signals confidence in its cash flow stability, even amid GAAP net losses. The dividend is underpinned by FRE growth and recurring management fees, not just volatile carry realizations.

Why Invest Now? Long-Term Catalysts Abound

1. Private Markets Tailwinds: Global private equity assets are projected to reach $15 trillion by 2030, with StepStone well-positioned to capture this growth through its diversified platform.
2. Dividend Discipline: The increased payout reflects management's confidence in recurring fee streams, which are less volatile than carry.
3. Risk Mitigation: The company's scenario planning and liquidity reserves ($245 million in cash) provide a safety net against market swings.

Final Call: Buy StepStone for Long-Term Gains

StepStone's Q4 results reveal a company that's not just surviving but thriving in turbulent markets. Its 29% fee-earning AUM growth, record FRE margins, and dividend expansion form a compelling case for long-term investors. While carry volatility and competition are risks, the company's scale, diversification, and focus on recurring revenue make it a standout play on the private markets boom.

Action Item: Consider initiating a position in STEP now, with a focus on its 2026-2027 outlook as markets stabilize. The dividend yield of 2.1% adds further appeal, supported by a fortress balance sheet and a $1.3 billion market cap that's yet to fully reflect its growth trajectory.

In a world where uncertainty reigns, StepStone's resilience and strategic execution make it a rare gem in the alternatives space.