StepStone Group Inc. (STEP) Earnings Call Transcript & Summary

Okay. Good morning, everyone. Thanks so much for being here today. I'm delighted to kick off the second day of our financial conference with StepStone Group. With me is Scott Hart, CEO; and Mike McCabe, Head of Strategy. And for anybody who doesn't know me, I'm Ben Budish, I'm Barclays analyst covering the U.S. brokers, asset managers and exchanges. So Scott, Mike, welcome. Thanks so much for being here.

Thanks for having us.

Maybe let's just start with like a high-level overview of the company for anybody who may be less familiar. Can you give us a bit of the company's history and talk about what does it really mean to be a solutions provider that's a little more unique in the alt space. What exactly are you providing to clients? And why is it so important?

Sure. That's obviously a pretty good start place to start. For StepStone, we were founded in 2007, we got our start initially in private equity, as you'll hear throughout the course of the morning here, have since expanded across the private markets. But for us, our history really starts with a few key observations that we made during that time, that really helped shape the business that we would then build over the next 15 years. And I think the first observation which was certainly becoming true at the time, certainly true now is that as the private markets continue to outperform the public markets on a risk-adjusted basis, we saw allocations to the private markets growing over time. So as CIOs and the asset owners took their allocations to the private markets from 5% to 10%, 20%, in some cases, as much as 1/3 of their portfolio and as we saw other new entrants into the private markets, look, it started to become clear to us that no 2 LPs, no 2 investor types were exactly the same. And that's really what created the opportunity for a customized solutions provider. So what does that mean? -- essentially, we partner with our clients to help them build private markets portfolios that are specifically designed to meet their needs or to help them access parts of the private markets that they wouldn't otherwise be able to access on their own. And I think part of the challenge in some cases in describing this is that, no 2 mandates look exactly alike. -- right? We might have a client that outsources the entirety of their private markets program to StepStone or they might look to us for a very small part of their portfolio. Early on in the life of a client's journey into the private markets, we might utilize strategies like secondaries to help mitigate the J curve and gain instant diversification whereas later on as they develop their portfolio may look to strategies like co-investments to help offset the fee burden across their private markets portfolios. But again, no 2 mandates, no 2 relationships look exactly alike. And so key to being able to pull off this strategy is really having a comprehensive private market toolkit -- in our case, that is the ability to invest across fund investments, secondaries and co-investments. We package those investments and really work with clients in a few different ways, either as their adviser, as a separate account manager as a coming fund manager. And we do that across all 4 private markets asset classes, private equity, private debt, infrastructure and real estate. And I'd say the other key to that strategy as a solutions provider is really taking a listen first mentality and understanding what's on the mind of the client, understanding what challenges they're looking to us to help address as opposed to showing up, thinking we know the answer. So look, why is that an important place to sit in the private markets? I think while I mentioned that LPs have grown more sophisticated over time, what they often are is they're often constrained either in terms of their resources, the size of their team, the fact they sit in a single office location yet are being asked to cover an increasingly complex private markets landscape has become more global. We've seen a proliferation in the number of strategies, sub-strategies, underlying managers. We've seen across the private markets. And so many of those clients ultimately reach the conclusion that partnering with a group like StepStone is going to be a more efficient way to access the private markets than trying to rebuild that on their own.

Great. Very comprehensive. Maybe one more kind of just a detail on StepStone specifically. You started out as primarily a private equity solutions provider, but have been diversifying. Where are you today? And when you think about kind of your growth over, say, the medium term, how much of your AUM is coming from your nonprivate equity classes? And where do you think the balance ends up shaking out?

Yes. So thanks, Ben. And it's been an exciting journey for us. As Scott mentioned, and I'd like to sort of pick up where he left off on the idea of listening first and acting second. And so as Scott mentioned, a lot of our clients who started with us in private equity, we're really excited about the value we were adding and said, "Hey, can you do something for us in real estate, can you do something for us in infrastructure or a private credit along similar lines. A lot of organizations tend to repurpose their existing investment teams for these other asset classes. We recognize that just wasn't going to be good enough. So we made the strategic decision to go out and source very senior, veteran, very thoughtful, experienced investors with track records and networks in each of these asset classes. And so we first brought on a large senior real estate team, followed by a private credit team, and then finally, with an infrastructure team. So it's been a very methodical approach towards building out this platform with strategic intent. As Scott mentioned, we started out in private equity. But as you sit here today, our asset footprint is roughly split 50% private equity, and the other 50% are the other asset classes. And if you look at the last 12 months, we've been able to successfully grow these other asset classes to at about 60% versus 40% private equity. So we're seeing a lot of growth and a lot of white space where LPs are under-allocated or underexposed to infrastructure, real estate. And while private credit has been having a good run for the last 3 to 5 years, but still these other asset classes are still underserved. And so we positioned ourselves with large teams in these asset classes. And we continue to see further growth in the non-PE spaces. I would say that, that 60-40 split also takes into account our recent acquisition of Greenspring. And so we augmented our private equity and venture capital team with the largest venture capital platform in the industry. And so even with that acquisition, we're still at a balanced 50-50 split.

Great. So in terms of fundraising, you sort of spoke to it in terms of where you're seeing the growth in the mix. Can you maybe comment on like the broader alternative asset fundraising environment? Perhaps specific to StepStone as well as, use in kind of a unique position between LPs and GPs. And there's no doubt that investors are -- they look at what's going on in the broader macro environment and they wonder can alts continue to fundraise the way they have, can they continue to deploy. So what are you seeing there, both kind of broadly and specific to the company?

Yes. Look, this has certainly been an area of focus for I think many investors over the last several months here. And there's no doubt the fundraising market has become more challenging than, say, a year or 2 ago, right? It's a crowded environment. We've seen GPs coming back to market faster than in the past. So I think it's roughly 2.5, 2.8 years in between fundraises today. If we think about our own investment committee over the last year, over 50% of the funds that we brought to our investment committee have returned to market in less than 2 years. So it's a crowded environment, LPs, there's a certain amount of fatigue setting in, and this is all being compounded by the fact that the public markets have declined and therefore, you need to have more conversations about the denominator effect. But I will tell you, Mike and I spent a lot of our time traveling around the world, meeting with our clients, meeting with our investors. It's not all doom and gloom. I don't think anyone is panicking today. Oftentimes, when we have a conversation about the denominator effect, it's immediately followed up by a story about how that client remember is having pulled back post financial crisis and missed out on some great opportunities. They're not going to make that mistake again. So I think in a number of different cases, the clients are trying to figure out how to maintain some level of flexibility. Yes, maybe they're being a bit more selective in today's market environment, but no one is slamming on the brakes completely. If I think about our own fundraising activity, look, I think we've had some great momentum of late, and I think we feel like we continue to be very well positioned. We've recently wrapped up the fundraising for a few of our key commingled products. So a large venture capital, secondaries focused fund, our flagship private equity co-investment fund. That's obviously a bit more backwards-looking than forward-looking today, but we continue to make great progress across a number of different funds that we have in the market at the moment here today. And so look, I think, overall, we feel confident in the fundraising environment. I think if anything, the impact it's likely to have is a slowdown in terms of the amount of time that it takes to raise the fund, right? If you plan to have a final closing in 2022, you might now need to extend that into 2023 in order to tap into your LPs, next year's annual budget. But overall, I feel like the absolute fund sizes that we'll continue to raise, certainly the deployment pace because we're a group that has stuck pretty closely to a 3- to 4-year deployment pace. We were not a group that was returning to market 12 or 18 months after we raised our last fund and as a result, feel like we can keep up that pace even in today's environment.

Great. Well, my next question was going to be on deployment. So you answered part of it. So maybe just in terms of opportunities then where -- how do you think about asset classes or geographies or where are the most interesting places that you think about putting capital to work?

Yes. Look, just in general, on the deployment activity and the market environment today, like the fundraising environment, have certainly seen activity moderate. Now that's coming down from a very rapid pace during 2020 and '21 that we didn't necessarily think that we could sustain and it's certainly not surprised by what we're seeing in the market. I mean oftentimes, when we see the public markets decline, you find that those that have dry powder are now looking for bargains. Those that are looking to sell assets are still holding out for yesterday's prices and should end up with a bit of a bid-ask spread and a slowdown in the deal pace. And I think you add to that increased level of uncertainty more challenge as it relates to financing deals today and no surprise that we've seen M&A activity in general and private equity investment activity moderate relative to last year's pace. -- but when we look back at history and we slice and dice our data in a variety of different ways, what we tend to find is that even in market environments like the one today, good investment opportunities do exist. You look at the lead up to the financial crisis, our data would suggest that about 1/3 of all the investments made during that time went on to generate 2x plus money multiples. Now the challenge was that during that same period of time, there were also an increasing number of deals that went on to be loss making. So our view in an environment like today is you've got to be selective. We've got to be patient, certainly coming out of COVID. You were rewarded for acting quickly because if you didn't act quickly, the opportunity had to some extent, disappeared before you had an opportunity to invest. I think this time around, it's going to be a bit different. We need to exercise patients in this environment. but we are seeing opportunities. And those opportunities are across asset classes today. I think we're finding in the co-investment space, that as you've seen other co-investors pull back, and there's increased uncertainty around financing new transactions or a concern amongst GPs that they don't want to sign up for a certain size check and run the risk of being able to syndicate that to co-investors after the fact. They're looking to groups like StepStone to come in and co-underwrite opportunities on a pre-signing basis. So what we've seen is that even though we've been more selective, we've approved fewer transactions on a year-to-date basis, actually, the dollars we've been able to deploy into those opportunities we have conviction in has been pretty similar year-over-year relative to last year. And then finally, I would mention on the secondary side, we think the secondary market has just gotten a whole lot more interesting. Obviously, we've talked a lot about the GP-led secondary space. over time. Now I think that the LP led secondary market is getting quite a bit more interesting as well. And that's an area that we operate across asset classes and across strategies today.

Great. Maybe we'll spend a little time talking about your different product types. So you have 2 primary offerings, SMAs and commingled funds. I think the last quarter, you started giving some more stats around like retention and re-uprate on the SMAs. Can you sort of talk about maybe the longer-term growth algorithm as you guys see it?

Yes. So any time I think we get asked about the growth algorithm, I think back to our IPO roadshow, we talked a lot about the fact that our growth is being driven by the ability to continue to grow with existing investors, to grow with new clients globally to tap into the private wealth and the high net worth opportunity to really take advantage of our scale and drive operating margins over time to monetize our data and technology and to selectively look to the M&A market. And I think we've made progress over the last 2 years across each of those fronts. But specifically to your question on separate accounts, look, it's really about those first 2 items that I mentioned, the ability to grow with existing clients and add new clients globally. And even if we think about the different ways that we can grow with our existing clients, there are sort of 3 different ways amongst our separate accounts. One is we've got $17 billion of undeployed fee-earning capital today. This is essentially a capital that we have raised that will pay us on invested capital. And so as we invest that $17 billion over time, it will convert into FEAR and AUM. But again, this is money that we've already raised from our existing clients. Second, to your point on some of the stats that we've started to share is our re-uprates. In many ways, we tend to think about this part of the business. like a software company. You can think about the gross retention of your clients, you can think about once you incorporate price increases or upsell, what's the net retention look like? And so what we've seen over time is that we've had north of a 90% re-uprate amongst our separate account clients -- when we fully invested a fund, and it comes time for the next one. And importantly, on average, those clients have increased the size of the next account by 30%. And so even before we start to account for new clients or new strategies, you can see there's quite a bit of growth built into our separate account business. And then the final way that we can grow with existing clients is just expansion of our relationships. And coincidentally today, it's about 36% of our clients that either work with us across more than one asset class or 36% of clients that work with us on both an advisory and an asset management basis and so the ability to grow with those clients has been particularly important during COVID, when we couldn't be out there on the road, meeting with new investors that ability to grow with our existing clients was quite important. You then layer on top of that, the fact that we've got a global business development team that is now out there scouring the globe looking to develop new relationships. And the fact that we are launching new strategies of late, we've seen our real estate team make progress with a multi-manager, primary focus, separate account model. In infrastructure, we've seen very good success of late with a few renewables focused, separate accounts or as we see the infrastructure markets start to develop in some ways similar to private equity, have brought on secondary focused separate accounts and infrastructure. And then finally, just building off of Mike's point around the Greenspring acquisition, with our expanded venture and growth capabilities and StepStone's historic strength in the area of separate accounts, you can imagine there's quite a few venture and growth-focused separate account conversations taking place today.

Great. That was super comprehensive. Maybe just kind of following up on the co-mingled side. I think investors tend to look as successor funds is perhaps growing 20%, but you mentioned that there may be some delays in fundraising across the board, not StepStone specifically. But over the next several years, how do you kind of suggest investors think about the pace of growth for co-mingled fund AUM?

Yes. Look, I think in a lot of ways, the algorithm is somewhat similar to what I just described on the separate account front. But we've always thought about these commingled funds, really as aggregation vehicles, allowing us to bring together multiple clients that maybe weren't large enough on their own or had some other reason they didn't want to invest in a separate account. -- yet want to access the same strategy that StepStone has to offer. But because it's made up of a number of smaller investors within these funds, I think you're right to think about it at the sort of commingled fund family level. And as you say, we've seen strong growth, fund over fund with each of our existing strategies. Oftentimes, you got to mention 20%. It's probably been a little bit north of that in terms of what we've set the target fund size at. And fortunately, given the tracker that we've developed and the strong fundraising environment have typically outperformed the initial target, even including the funds that we've recently wrapped up, again, in venture secondaries and private equity co-invest. And so that's just growth amongst the existing product base. You now layer on top of that the fact that through Greenspring, we've added a number of different venture and growth-focused commingle strategies -- and then on an organic basis, continue to roll out new strategies, maybe the most notable of which would be our infrastructure co-investment fund that we are currently discussing with clients, that's the first commingled fund that we've offered in the infrastructure asset class or strategies that, frankly, the combination with Greenspring has created the capability to pursue things like our venture-focused product for the private wealth space.

Well, that was a great transition because I did want to ask about the retail side. So you've got CPRIM in the market for a short period of time now but growing very rapidly. Could you maybe give us a little color there? How is it the design tailored for retail? What kind of liquidity is there for retail investors? And what's the sort of distribution strategy there?

Sure. Thanks. Retail is probably one of the most exciting opportunities, not just for StepStone but for the asset class generally, and you're hearing lots of headlines about managers and various organizations figure out how to crack the retail code. And I think StepStone is particularly well suited to crack that code, but why? because we're a multi-manager, multi-asset class and multi-strategy platform. And so for a retail investor, it's a challenge. Do I pick a fund, a pick a manager, do I pick a strategy? -- what StepStone did was we created this product called CPRIM, which is a multi-asset class. So it's PE, real estate infrastructure private credit. It's multi-strategy, it's secondary, that's co-investments, it's fund investments. And so what we've done is we've created a single-ticket solution for an individual investor to get a diversified portfolio exposed immediately into the market across the 4 asset classes and 3 strategies very quickly. So it's a super efficient way for an individual investor to get access to the private markets, broadly speaking. Now we designed the thing purpose-built for the broader market. So this is designed to accommodate accredited investors. So we'll take ticket sizes down to $50,000. It's very fee efficient with 1.4% management fee, and there's no carried interest. It's a 1099 as opposed to a K-1. So it's super convenient. And there's a liquidity feature. So there's quarterly redemption, 5% is CAP, but there's an opportunity for investors to seek liquidity over time should they need it. So we really began our foray into the retail space with this very diversified product, a very convenient product and a product that hits the broader retail market. How do we distribute it? What are our priorities there? It's basically a 4-pronged distribution strategy, focusing it on the RIAs, the IBDs, the wire houses and the international markets. And all 4 of those strategies are front and center. We've had a tremendous amount of success initially with the adoption of the RIAs and IBDs and I see -- I think we're seeing about 130 platforms right now. We landed our first wire house this summer, and so we're starting to see flows come in from our first wire. Like you mentioned, Ben, this was an early launch for us. It's about a little over a year ago, started $10 million to $20 million of flows a month. Last year, we got up to about $20 million to $40 million. And the summer was our strongest fundraising period yet, and we're now seeing fundraising flows in the magnitude of $60 million a month. The fund is now sitting at about $700 million. And I think our point of pride here is the fact that our returns have been exceptional through a pretty difficult period. CPRIM is sitting at a 78% net return. So the combination of the design, the multi-asset class, the multi-strategy, the convenience and, of course, returns matter. And so at a 78% return, we're continuing to see an awful lot of success there.

And that really is quite unique. Maybe following up on retail, I think a couple of months ago, you launched a new product out of Conversus, a private venture and growth fund. Can you maybe talk a little bit about how is this one different from the previous one? I assume maybe the distribution strategy is similar. But what are the other kind of differences in terms of the 2 offerings versus each other?

Sure. CPRIM was designed to be our sort of core launch, and then we expect to have satellite products around CPRIM. And it was very natural and very logical for our second product to be in the venture capital and growth equity space, in part because of the acquisition and integration of the Greenspring team, which was the largest venture capital platform in the industry. And as Scott and I have been talking about throughout this morning has been we listen first, and then we act second. Our distribution partners have been putting feedback to the executive committee about what the market is looking for. And our position in the innovation economy is second to none. And so a lot of the feedback we've been receiving has been, hey, can you do something for us at this point in the cycle and venture capital and technology where there's been a pretty substantial repricing and asset valuation re-rating. So it was well timed, and we were well suited to launch our second product in the venture capital and growth equity space called C SPRING. It's a little bit different than CPRIM in terms of its design. It's designed for the qualified client, not a QP, QC. And so it's a $2 million net worth and it's a $100,000 ticket. The fees are also a little bit more in line with what you would expect in BC and technology as we do direct investments, secondary investments and some funded primary investments as well. So there is a management fee and a carried interest, but there is still a redemption feature quarterly at 3%. And -- so it's very similar, but it is very targeted toward a part of the economy that we think is exciting at this point in the cycle in particular.

Great. Maybe switching gears. Can you talk a little bit about data. You guys sit between many, many LPs and GPs, you collect massive amounts of data. Can you talk about the company's advantage here and sort of how you use it to develop your solutions to target customers to develop customized products and the like?

As Scott mentioned in his opening remarks about sort of the design and concept of StepStone, it was in the very early days of the formation of the company that we saw data and technology as a potential competitive advantage for the firm. Look, unlike the public markets, anyone who wants access to data in the private markets needs to be a participant. And that's a really important barrier to entry when it comes to data and technology. StepStone's asset footprint is over $0.5 trillion, and we're deploying roughly $75 billion a year into the private market. So we are one of the largest participants -- so we have access to probably the largest amount of data. And it's not just private equity, it includes venture capital. It includes real estate. It includes infrastructure and private credit and it's data that's not just captured at the fund level, but it stayed captured all the way down to the asset level whether it's an apartment building, whether it's a company, whether it's a start-up, whether it's an infrastructure asset, all of the operating data at the asset level is captured in our database. What is our database. It consists of a front-end technology that is homegrown. We have a large data science and engineering team dedicated to coding up the software. And the first part of the technology solution is at the front end of the business, which is called SPI, and SPI is now capturing you think about all of the managers in the market, all the managers that have been in the market and everything that our investment team is looking at to make a decision as to whether or not to invest is all captured through SPI. So think about it as a pre-commitment database. The second technology that we have is called Omni. This is the technology that we've coded up to monitor and analyze once an investment has been made. And so we have both the front end and the back end, all homegrown owned by StepStone and coded up by our own data science and engineering teams. What's important is our DSD teams are closely interfacing with our client managers feeding back to our team, what our clients need in terms of flexibility for slicing and dicing data, same thing with our research team and our investment teams side-by-side with our data science and engineering teams. I highlight this important point because there are a lot of third-party software providers out there that can offer some version of what we're doing on the front end and the back end. But the most important thing for us is to be able to deliver a solution to our clients that is value-added. That means we need to customize what we're doing for their needs and benefits. And so having it in-house and being in control of our own destiny when it comes to data and technology is essential. And we use the cross-sell. We use it to upsell. We use it to enhance the value proposition that we're bringing to our clients. We see data and technology really as an exciting opportunity for us, certainly going forward as the owner of our software and the owner of our technology. Great.

Maybe kind of a different direction here. Just can you speak a little bit about the geographic diversity of the business. You mentioned you guys are traveling the world kind of looking for new partners and new clients. Can you talk about where you're seeing the most traction and interest in alternative asset investments both from the kind of the client side and the deployment side?

Yes. Well, look, I mean, again, I talked earlier about some of the key observations that we made that helped shape the firm that we've built over the last 15 years. And certainly, on the -- another one of those observations was the fact that the private markets were becoming increasingly global, in terms of where that client capital was coming from, but certainly, where we are looking to make investments as well. And we had a number of, I'd say, experiences early on that highlighted the importance of building out what we call a global and local team. We've built a footprint of 23 offices around the world to help us to better service our clients, but also help us more successfully invest around the world. And the good news with a pre-highly diversified business from not only a geographic standpoint, but across a number of other parts of the business is there's not any one geography that we're relying on today. Certainly, you've seen a bit of a narrative form that is the U.S. market, maybe specifically U.S. public pensions that have been most impacted by the denominator effect. There's probably some truth to that in the sense that maybe there's less flexibility there to deviate from one's plans or oftentimes more mature private markets portfolios. But I'd say we've had good success over the course of the last 12 months in terms of expanding our relationship with a number of our key U.S. clients, which does continue to be an important part of our business. But we've certainly talked over the last several years about the fact that the vast majority of our management advisory fees, plus or minus 70% come from outside of the U.S. if not one, any one geography in particular, certainly, Asia, Middle East, Australia, increasingly, Latin America have been key markets for us. I think they will continue to be key markets for us. I think these are some of the geographies that we continue to see new pools of capital coming online or new private markets portfolios being launched. Oftentimes, these are markets where young growing populations that are helping to drive the growth and sort of the denominator of these institutions, not market-driven, but just in terms of inflows into the portfolio, in some cases, have been helped by commodity prices. I think there's a variety of different drivers that are resulting in the international markets continuing to be pretty attractive. And given the footprint that we have there, oftentimes, when one of these institutions is making a decision about which firm to partner with, they look at, well, who was it that last successfully helped launch a program in this region. -- and what reference clients can I call on. And fortunately, that all, I think, works in our favor given the footprint that we've built over these last 15 years.

Great. Let's switch gears. I'd like to talk about the secondaries business a little bit more. You touched on this earlier. And I think you guys have talked about many times in the past, this is an important emerging opportunity. How big is the potential opportunity there? How big is like the secondary TAM when we think about secondaries versus the primary markets? How should we think about sizing that up?

Sure, thanks. And look, I think it's first worthy of noting that we've spent 12 to 14 years building out a secondary platform and thrilled to report that I think we were just ranked in the top 5 of the largest secondaries platforms in the world. And so we've had a lot of success here in this part of the market. How big is it? There's trillions of dollars of net asset value sitting in the ground. And the last couple of years have seen record years in the secondary market. We'll talk a little bit about the drivers behind that, but we could see this being a $100 billion a year industry in terms of TAM, and there's lots of room to grow. What has emerged in the last 3 to 5 years has been sort of an awareness or a conclusion that general partners have made that they are structurally at a disadvantage with their partnership agreements to force a sale of an asset they may otherwise want to hold on to because it's doing well. And so what has happened in the last 3 to 5 years is the emergence of what are called continuation funds. And these are vehicles that GPs have set up to give another 3 to 5, even 7 years of runway for certain price companies that they just want to hold on to and continue to enjoy the benefits from a compounding growth or profitability rate. And so they're using the secondary market as a source of capital to create these continuation vehicles. fairly nascent 5, 6 years ago, 3 years ago in 2019, it was almost 50% of the market. And in fact, 2020, I think it surpassed 50%, and it was almost 60% of the entire secondary market were GP-led secondaries. Now the last 10 to 12 years has been this procyclical expansionary period. And so LPs have been a little less quick to sell. They've been watching their assets growing value, and there has certainly been an active secondary market with LPs repositioning their portfolios, but it's not been anything like what we've seen in the GP continuation space. And so StepStone has been well positioned to capture both. Now as the tide has turned and as the cycle is changing and as valuations are coming down, as fundraising is taking a little bit longer, LPs are rethinking what's in their portfolio and should they be paring back certain relationships, should they be repositioning their portfolio. And so what we're expecting to see this year is an uptick in LP secondary sales. And we would expect to see LP sales probably on par with continuation funds as GP led secondaries. And I would say [ in spite ] of all the agreed, we would expect LP sales to probably exceed GP continuation funds in the coming year or 2. So it is somewhat of a countercyclical market from an LP led perspective. And given where we are in the cycle, we would expect to see that part of the secondary market to grow. So it's an exciting time to be in the secondary market. There is a lot of things going on. There is a countercyclical approach and there is a pro-cyclical approach. And that's sort of a new emergence within the secondary space.

Fantastic. Maybe another like a high-level question. And I think we talked at the beginning, I know you mentioned retail, just this tremendous untapped opportunities. Some LP is experiencing the denominator effect to some extent. In general, though, how high or how much more room is there to run in your view in terms of institutional allocations? I think everybody sort of expects retail, very low single digits. That's going to go much higher. I'm not sure where it shakes out. But among the pension funds, endowments, sovereign wealth funds, where do you see levels? And what are the conversations like in terms of those partners making structural changes where they say, we're going to keep steady increase, lower our mandated allocation to alternatives.

Yes. I'm happy to start there. I mean, look, I don't think there have been many of our clients that we've had conversations about potentially lowering their allocations to alternatives. I think if anything, as they become more comfortable with these asset classes over time as they benefited from the performance that they've seen over time, have seen the opposite of seeing them staying steady or if anything, increasing slightly. Certainly, some of that was driven by a low interest rate environment to sort of search for yield. But I think now that we've seen, for example, strategies like private credit, present in portfolios for several years, look, I think the reality is that many of these institutions, many of the CIOs have become increasingly comfortable with that as a -- not just an opportunistic but a longer-term allocation to the asset class. So look, I think part of the reason that we have trouble answering the question is, sometimes I find it difficult to generalize because of the fact that I started out talking about, which is now 2 LPs are exactly like. And so there may be many of our clients that have been investing in the private markets for the last 20 years. Maybe they have reached a point where they're not going to see a tremendous growth in sort of the target allocation, but you're going to continue to see liquidity coming off that portfolio that needs to be reinvested over time. And you're going to see a shift in what they may be focused on. Again, I talked about it earlier on that early in one's life, investing in the private market, there might be more focus on how do I gain instant diversification, how do we moderate the J curve later on, it becomes about optimizing, finding what areas that the LP themselves might want to focus on versus where they might outsource to a group like StepStone. But again, you layer on top of that the fact that we still see new pools of capital coming online that have gone from 0% private market to 1% or 2%. And -- but on a multi-hundred billion or $1 trillion portfolio, that certainly moves the needle. I think those groups are likely to go through a similar evolution where they become more comfortable with the asset class over time and see representing an increasing part of their portfolio. So look, we feel confident there's a lot of room to run. We feel confident that with the diversified platform that we've built that even as the market environment shifts, we've created a platform that allows us to address any challenge that our clients are facing within the private markets today.

Great. Well, we have a couple of minutes left. Happy to take any questions from the audience if there are any or we can keep going. All right. Maybe let's talk about Greenspring a little bit, your most recent acquisition. And can you kind of weave in your thoughts on your high-level thoughts on M&A versus kind of organic growth. So for Greenspring, a couple -- can you give us an update on kind of where you are with the integration and how that's gone? And overall, yes, how do you think about M&A and build versus buy?

Yes, sure. The Greenspring was a transaction we closed just about this time last year and a very exciting transaction. The integration has gone exceptionally well. As I mentioned, this is the this is the largest venture capital growth equity platform in the asset class in the industry. The business that was started 20 years ago by Ashton Newhall and Jim Lim and they've built out a fantastic team. What Greenspring did that no other organization was able to do was sort of crack the code when it comes to gaining scale in an asset class that's difficult to scale in. Well, how did they do that? Why did they do that? Well, it began with a vision and they kind of took a step back and looked at venture capital broadly as an innovation economy. And through the innovation economy, they took this life cycle approach to investing in venture capital, and that means beginning with seed rounds, and micro and then early stage and then Series B through DF and then into growth equity. So think about the life cycle of a company from a seed to its growth equity and first institutional capital. Greenspring was there front and center across the life cycle within the innovation economy. And they were a strategic partner to the general partners they were investing in by investing in a large operating partner platform. And so they would bring executives and industry experts to bear and augment what the GPs would bring to bear with their portfolio companies. they would sit on Board, they would try to add value, they would network. They would be there to lead rounds of capital where BC may be in between funds or they may have an exposure limit, they needed additional capital for a round. And rather than bringing a competitor GP and bring in noise at the board room, they went to Greenspring and said, "Hey, Greenspring, would you like to lead this next round? And of course, Greenspring would have access to all the data, all the information, the ability, the due diligence on it. So Greenspring was there as that value-added partner to the GPs and a life cycle partner to LPs to get access to this broader economy. And that has really been what they unlocked as the code to scaling up in venture capital. StepStone had a very good and very capable venture capital growth equity team already. It was a very natural and logical extension. And the first thing Scott and I did and Jason did when we met with the Greenspring team was, we went to our venture capital team and say, what do you guys think? And they said, "This is the greatest opportunity we've seen in a long time as to it. And so there was buy-in culturally, there was buy-in strategically and there was buying operationally from day 1. And the results have been the proof of the pudding. They've been very successful at raising the largest secondaries fund in the history of the industry at $2.6 billion. They've had a successful micro fundraise of $260 million. They had a very successful direct fund investment fund raise at $850 million. So the fundraising has gone extremely well with the Greenspring team on the StepStone platform, and we're excited about the prospects in the future.

Great. Well, unfortunately, we're out of time. But let me just say again, thank you so much for being here. What a great conversation. Really appreciate it.

Thank you, Ben.