Stepstone Group Inc. · NASDAQ:STEP
Stepstone — Investor Presentation (February 2025)
69 slides from Stepstone's investor presentation, February 2025
Slide 1: 2025 private equity market outlook
2025 private equity market outlook February 2025 20250219-4255872-13438304
Slide 2: Notes
NOTES This document is for informational purposes and is meant only to provide a broad overview for discussion purposes. Prospective investors should inform themselves and take appropriate advice as to any applicable legal requirements This document does not constitute an offer to sell, a solicitati
Slide 3: Global macroeconomic indicators
Global macroeconomic indicators 20250219-4255872-13438304
Slide 4: 2025 macroeconomic outlook
2025 macroeconomic outlook Uncertainty regarding inflation, growth and interest rates increased again. Short term Long term Inflationary pressures, related to both supply and demand, are easing. Demographics and trend toward deglobalization could prove inflationary. Inflation Drivers differ somewhat
Slide 5: Key macro factors - outlook consensus
Key macro factors - outlook consensus Consensus view (1Q25 – 4Q25) 1.1% 1.5% 2.0% Drivers: combination of monetary policy, geopolitics and (Ann.) (Ann.) (Ann.) resilient labor markets Growth UK and Europe seen as remaining weaker than the US going StepStone forward despite an expected slight rebound
Slide 6: GDP growth & economic activity
GDP growth & economic activity Real GDP growth – historical & consensus forecasts PMI – composite Quarter over quarter change of in %, shown annualized Boom / bust threshold at 50 75 6.0% 70 5.0% US UK EZ Expansion 65 4.0% 60 3.0% 55 2.0% 50 1.0% 45 0.0% 40 Contraction -1.0% -2.0% 35 Q4 22 Q4 23 Q4
Slide 7: GDP growth & economic activity
GDP growth & economic activity PMI – services PMI – manufacturing Boom / bust threshold at 50 Boom / bust threshold at 50 75 70 70 65 Expansion Expansion 65 60 60 55 55 50 50 45 Contraction 45 Contraction 40 35 40 Dec-21 Dec-22 Dec-23 Dec-24 Dec-20 Sep-21 Sep-22 Sep-23 Sep-24 Mar-24 Sep-20 Jun-24 Ma
Slide 8: Consumer health
Consumer health Retails sales Retail sales Month-on-month changes in % Year-on-year changes in % 10.0% 10.0% USA EZ UK 8.0% 8.0% 6.0% US UK 6.0% 4.0% 4.0% 2.0% 2.0% 0.0% 0.0% -2.0% -2.0% -4.0% -4.0% -6.0% -6.0% -8.0% -8.0% -10.0% -10.0% Dec-21 Dec-22 Dec-23 Dec-21 Dec-24 Dec-22 Dec-23 Dec-24 Apr-22
Slide 9: Interest rates forwards and priced rate cuts
Interest rates forwards and priced rate cuts Forward curves Number of implied rate cuts in % Increment of 25bps rate cuts 0 6.0% SOFR EURIBOR SONIA -0.5 5.0% -1 4.0% -1.5 3.0% -2 2.0% -2.5 1.0% -3 Fed ECB BoE 0.0% -3.5 Oct-21 Mar-23 Jul-24 Dec-25 Apr-27 Sep-28 Jan-30 -4 -1.0% Feb 25 Mar 25 Apr / May
Slide 10: Long-term trends
Long-term trends Higher 10-year real rates and shrinking central bank balance sheets could leave financial conditions tight 10y real yield1 Central bank balance sheets2 3.5% % of GDP 2.5% 140.0% 120.0% 1.5% 100.0% 0.5% 80.0% 60.0% -0.5% 40.0% -1.5% 20.0% 0.0% -2.5% May-21 May-23 Jan-10 Jan-12 Jan-14
Slide 11: Financial conditions
Financial conditions After deteriorating throughout the tightening cycle, financial conditions now appear to be easing Lending conditions (%)1 Financial condition index2 2 Loose 85% 0 65% 45% -2 25% -4 Tight 5% -6 -15% -8 -35% -10 Mar-02 Oct-09 Jun-18 Nov-23 Dec-24 Jun-05 Jan-13 Sep-21 Aug-07 Nov-10
Slide 12: Fiscal deficits remain, but improved from COVID highs
Fiscal deficits remain, but improved from COVID highs Government Budget Balance1 Interest payments2 % of GDP US EZ UK 5.0% 0.0% 4.0% -2.0% -4.0% 3.0% -6.0% -8.0% 2.0% -10.0% 1.0% -12.0% -14.0% 0.0% -16.0% USA UK Italy France Germany 2019 2020 2021 2022 2023 2024 2025 2019 2020 2021 2022 2023 2024 20
Slide 13: Some recent volatility in FX rates
Some recent volatility in FX rates FX markets experienced volatility in 2024, driven by monetary policy and geopolitics. We anticipate FX volatility will continue as a result of the new U.S. administration’s policy agenda USD Exchange Rates USD Exchange Rates USD / EUR & USD / GBP USD/ JPY 1.05 170
Slide 14: Dominant ESG risks
Dominant ESG risks Environmental and social risks pose short-term and long-term risks alike. Inequality1 Climate2 Top 10% share of total income Annual CO2 in billion tons 65.0% 40 35 55.0% 30 25 45.0% 20 15 35.0% 10 5 25.0% 0 1851 1968 1977 1995 2004 2013 1887 1905 1914 1932 1950 1959 1941 1860 1869
Slide 15: Trump implications 2.0 outlook
Trump implications 2.0 outlook 2025 macroeconomic Uncertainty regarding inflation, growth and interest rates increased again. The optimist The cautious Limitations of any administration Some, including prominent investors, are Most economists and currently, the bond Particularly for longer-term inve
Slide 16: Private equity market themes
Private equity market themes 20250219-4255872-13438304
Slide 17: The private equity landscape
The private equity landscape 1 2 3 Optimism for a healthier 2025 M&A What is the opportunity for private equity in LPs exploring more sophisticated market, driven by good debt availability, a higher rate environment? tools to access private equity stable macro, and stronger buyer/seller motivation.
Slide 18: 2025 private equity market outlook summary
2025 private equity market outlook summary KEY MARKET OBSERVATIONS IMPLICATIONS FOR PRIVATE EQUITY • 2024 fundraising sentiment has improved modestly YoY, with fewer LPs • Fundraising environment will continue to be challenging without distributions normalizing. More GPs need overallocated co-invest
Slide 19: 2024 fundraising better for buyouts than venture
2024 fundraising better for buyouts than venture Buyout fundraising averaged ~US$400m per year for the last few years, with volatility in 2022 and 2023 as funds took longer to reach final close. VC/growth equity fundraising continues to decline as the market has cooled off from overallocation, valua
Slide 20: Most of PE exposure growth is in NAV
Most of PE exposure growth is in NAV Dry powder as % of NAV has actually come down over the years as sponsors put money to work successfully. Significant growth in NAV creates substantial secondary buying opportunities over time. Private equity NAV and dry powder $ in billions $12,000 140% 120% $10,
Slide 21: Dry powder concentrated in larger funds
Dry powder concentrated in larger funds Global private equity dry powder by fund size $ in billions VENTURE $2,500 9% CAGR $2,000 GROWTH 7% CAGR $1,500 LRG/GLBL 14% CAGR $1,000 MID 4% CAGR $500 SBO 4% $0 CAGR 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2
Slide 22: Private equity cashflow trends
Private equity cashflow trends Q4 2024 distribution activity increased 29% YoY relative to Q4 2023, while contribution activity has decreased 25% over the same period. Contribution rebound will likely experience some delay with the increased use of capital call lines. % change in YoY cashflow activi
Slide 23: Private equity distributions over time
Private equity distributions over time PE distributions were 12% of NAV in 2024, slightly above 2023 but meaningfully below the long term historically average. Private equity distributions since 2000 2000–Dec 2024 36% 36% 35% 32% 28% 29% 29% 27% Distributions (% of NAV) 24% 25% Average 23% 22% 21% 2
Slide 24: In mature buyout funds, nearly half of companies >5 yrs old
In mature buyout funds, nearly half of companies >5 yrs old The median age of unrealized investments has been rising steadily over the past 2.5 years. Ratio of companies > 5 years old (global buyout, fund age > =5 yrs) 55% 6000 5000 50% 4000 45% 3000 2000 40% 1000 35% 0 2014 2015 2016 2017 2018 2019
Slide 25: Modest exit recovery in 2024, across all paths
Modest exit recovery in 2024, across all paths PE exits to corporates ($B)1 PE exits to IPO ($B)1 $400 2000 $500 350 300 $400 $300 1500 250 $300 200 $200 1000 $200 150 $100 500 100 $100 50 $0 0 $0 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2016 2017 2018 2019 2020 2021 2022 2023 2024 Exit Value
Slide 26: Most PE buyouts continue to exit at a premium to marks
Most PE buyouts continue to exit at a premium to marks Even in tough times, the average deal continued to exit at a premium to historical marks. Despite a tough exit environment between 2Q 2022 until now, the average premium (orange bar) at exit was ~11%. Exit valuation premium/discount to trailing
Slide 27: But be prepared for longer holds in tougher vintages
But be prepared for longer holds in tougher vintages After a decade of shorter holds in an expansionary cycle, some tougher vintages will see longer hold periods. IRR distribution by invested capital – buyout deals 2000–Dec 2024 2006-2008 vintages 2010-2020 vintages 7.1-year avg. 5.3-year avg. hold
Slide 28: Credit markets opened in 2024
Credit markets opened in 2024 Loan volumes were exceptionally high in 2024 and allowed PE owners to take advantage of declining spreads to extend maturities. Most of the activity in 2024 came from opportunistically refinancing/repricing existing deals, rather than supporting new deals. Lending activ
Slide 29: Central banks are starting to cut rates
Central banks are starting to cut rates Central bank rates Distribution of spreads Dec 31, 2021 – Dec 31, 2024 New-issue sponsored direct lending Rate cuts 6.0% 5.3% 4.8% 5.0% 4.5% 83% 4.0% 4.0% 3.8% 3.3% 3.0% 3.0% 41% 2.0% 35% 30% 19% 22% 19% 22% 1.0% 13% 10% 8% 0.0% - -1.0% Less than S+500 S+500-5
Slide 30: PE new deal activity emerging from 2023 lows
PE new deal activity emerging from 2023 lows As credit markets healed, PE deal value increased 23% YOY in 2024. During the same period deal count increased by 12%. 20,894 19,602 19,123 $2,297 17,055 $1,833 13,973 13,702 $1,750 13,402 12,030 10,878 10,997 $1,428 $1,292 $1,339 $1,222 $1,116 $1,159 $99
Slide 31: Buyout valuation environment
Buyout valuation environment PE buyout multiples have increased 6% YTD September 2024, driven by larger market deals in more cycle resistant companies. Multiples for smaller and/or more cyclical assets continue to trend down slightly. Purchase multiples – value vs. premium industry buyouts1 Purchase
Slide 32: Buyout leverage multiples beginning to rise
Buyout leverage multiples beginning to rise Sponsors remain cautious in their use of leverage, but we are seeing an increase in larger, more cycle-resilient deals. Leverage multiples – value vs. premium industry buyouts1 Leverage multiples – small/mid vs. large/global buyouts2 2012–September 2024 20
Slide 33: 2024 public equities had a great run, driven by valuation increases
2024 public equities had a great run and was hard to beat, but heavily driven by valuation increases Multiple expansion due to interest rate optimism has significantly contributed to historically high equity prices in 2024, especially in the US large cap market. This creates more sensitivity to earn
Slide 34: PE offers a stronger diversification opportunity
PE offers a stronger diversification opportunity During the last 40 years, public equity markets have provided less and less exposure to small cap businesses. Moreover, private market exposure is increasingly skewing towards mid/large caps Historical trend of US listed companies Current blend of US
Slide 35: Asset composition and quality – public vs. private equity
Asset composition and quality – public vs. private equity PE investments typically target much smaller companies. Median TEV of buyout investments is ~US$750M1 , while median TEV of public companies is ~US$3B2 PE companies also demonstrate stronger EBITDA growth rates compared to their public counte
Slide 36: PE continues to capture more upside than downside
PE continues to capture more upside than downside DOT-COM Bubble Global Financial Crisis Covid-19 42.8% 40.8% 15.9% 19.9% 16.3% 13.4% Burgiss Trough to peak -19.6% -20.6% -43.8% -46.3% -45.8% -48.6% 38% of S&P 500 S&P 500 MSCI World S&P 500 MSCI World S&P 500 MSCI World 52.1% 53.3% 2022 private equi
Slide 37: PE's long-term outperformance persists
PE’s long-term outperformance persists Seasoned buyout vintages have consistently outperformed the MSCI ACWI over several cycles, particularly top quartile funds. Direct alpha of median and top quartile private equity funds to public market1 25% 22% 21% 20% 19% 18% % outperformance to MSCI ACWI PME
Slide 38: Importance of manager selection
Importance of manager selection • Greater performance variability of smaller buyout funds compared to larger funds, as indicated by the dispersion of returns between quartiles and within each quartile • StepStone aims to identify the best managers within the top quartile and avoid exposure to the bo
Slide 39: How does an investor make PE returns in this higher rate environment?
How does an investor make PE returns in this higher rate environment? It’s very difficult to “make money on the buy” and risky to depend on multiple expansion to generate base case returns Instead, drivers of the investment return must be rooted in a reasonable value creation plan – organic revenue
Slide 40: StepStone underwriting – drivers of returns
StepStone underwriting – drivers of returns StepStone’s underwriting is rooted in value creation and earnings growth, rather than multiple expansion. StepStone base case underwriting value bridge 2.5x - Operating - Roll up/ efficiencies consolidation 1.0x - Transformative acquisition - Price optimiz
Slide 41: AI is becoming a common tool for value creation
AI is becoming a common tool for value creation The majority of investors are expecting generative AI to bring significant value in the next 5 years Expectation of value capture from generative AI 2% 1 Year 65% 34% 3 Years 63% 30% 7% 5 Years 43% 57% No or minimal Moderate Significant value value val
Slide 42: Regional outlooks
Regional outlooks 20250219-4255872-13438304
Slide 43: Key themes in North American private equity
Key themes in North American private equity Interest rate environment has hampered deal activity creating a dearth of distributions that has normalized fundraising cycles. This backdrop coupled with elevated dry powder driving ongoing flight to quality, and opportunities in Small Market buyout and c
Slide 44: Key themes in European private equity
Key themes in European private equity European private equity activity expected to rebound amidst a challenging macroeconomic backdrop FALLING INTEREST RATES After ECB interest rates reached 4.0% in September 2023 and inflation stabilized (2.4% annual inflation in the Euro Area as of December 2024
Slide 45: Key themes in Asia
Key themes in Asia Demographics, geopolitics, and fiscal/monetary policies are key factors influencing Asian markets. Asia continues to be a key growth engine of the world economy. The region’s macro and policy divergence from North America and Europe makes it critical for building a diversified and
Slide 46: Co-investment market overview
Co-investment market overview 20250219-4255872-13438304
Slide 47: More LPs want co-invest
More LPs want co-invest Co-investment deal volume peaked in 2021 and despite slower M&A activity, co-investment deal volume increased 30%+ from pre- to post- peak Co-investment deal volume vs. number of co-investments $ in billions $70 350 $60 300 $50 250 $40 200 $30 150 $20 100 $10 50 $0 0 2005 200
Slide 48: LPs see multiple benefits of co-investments in portfolios
LPs see multiple benefits of co-investments in portfolios Reduced fees and carry Enhanced diversification Insights and access Co-investment funds typically charge half of the Co-investments increase control over portfolio The co-investment process provides an typical 2/20 fee structure of private eq
Slide 49: What has been driving growth?
What has been driving growth? Increased financing costs High equity contributions Fundraising dynamics While spreads for levered buyouts have Equity contributions increased in 2024 above Fundraising activity has slowed, although it contracted in recent months, the all-in cost of highs that were last
Slide 50: Market well-positioned for future co-investment volumes
Market well-positioned for future co-investment volumes Pressure for liquidity Record dry powder Improving market dynamics A meaningful decline in investment activity between Dry powder is at record highs on an absolute Valuations rebounded in 2024 coming off a steep 2022- 2024 reduced distributions
Slide 51: Highly diverse opportunity set
Highly diverse opportunity set 17% 18% Industrials/Materials 16% 15% 13% Information technology 24% 8% 9% Healthcare 18% Investment opportunities 2022 5% 1% 2023 2% 2024 6% 1% Consumer 1% 21% 1% 1% Financials by sector: 18% Communication services 20% 24% 23% 19% 18% Real estate Energy/Utilities <1%
Slide 52: Sponsors seeking co-invest partners earlier
Sponsors seeking co-invest partners earlier Sponsors are often seeking capital partners earlier in the transaction process; passive co-investors unable to complete diligence on a co-underwriting/pre-signing basis will increasingly miss out on these opportunities or fail to secure an allocation % co-
Slide 53: Co-investments have outperformed parent funds
Co-investments have outperformed parent funds Co-investments have demonstrated an ability to outperform their parent funds on a risk-adjusted basis, with 61% of deals outperforming net TVPI and 75% outperforming the loss ratio Co-investment outperformance relative to parent fund TVPI, % loss ratio 7
Slide 54: Selectivity is key to success
Selectivity is key to success Broad opportunity set allows StepStone to maintain selectivity. – Large pipeline offers investment opportunities in all market environments. – A more uncertain operating and valuation environment led to reduced completion rates in 2022 and 2023, with a gradual normaliza
Slide 55: Enhanced insights beyond the traditional process
Enhanced insights beyond the traditional process Our extensive relationships and array of proprietary data and information provides valuable clarity and insights generally not available through a traditional co-investment diligence process STEPSTONE ENHANCED PROCESS Direct 3rd party access GP deep d
Slide 56: Secondary market overview
Secondary market overview 20250219-4255872-13438304
Slide 57: Current trends in private equity secondaries
Current trends in private equity secondaries Annual secondary volume reached a record of +$160B, +40% growth in volume over 2023 • Market growth expected to continue into 2025 according to early projections Record setting • LPs and GPs continue to face liquidity pressure, and increasingly turn to se
Slide 58: Secondaries pricing rise modestly
Secondaries pricing rise modestly Buyout secondaries have increased in price (as % of NAV) modestly since 2022 lows, but remain below 2021 peak Secondary pricing over time (% of NAV)1 As of June 30, 2024 109% 103% 99% 96% 97% 97% 94% 95% 94% 93% 91% 90% 91% 89% 86% 87% 84% 88% 83% 83% 81% 78% 77% 74
Slide 59: LP interests: market dynamics
LP interests: market dynamics Stabilizing public markets and narrowing bid- …market supply has shifted meaningfully into ask spread attracting more sellers StepStone’s strategic sweet spot 100% 39% 39% 95% 94% 90% 91% 87% 10% 12% 85% 80% 2012 or Older 2013-2015 2016-2018 2019 or Younger 75% 70% 65%
Slide 60: GP-leds: rapid adoption
GP-leds: rapid adoption 2024 GP-led tailwinds1 Capital availability Growing High growth High quality sponsors Record NAV in PE constraints create an acknowledgement of market increasingly utilizing funds hit $8T attractive investment transaction benefits 2x in size by the GP-led market environment f
Slide 61: GP-leds: continued growth while M&A/IPOs remain down
GP-leds: continued growth while M&A/IPOs remain down PE exits through M&A ($B) PE exits through IPO($B) PE exits through GP-leds ($B) $6,000 $800 $80 10%+ $714 $700 $70 $5,000 $600 $60 (29%) $4,000 from peak $500 $50 $3,000 $400 $40 $75 $325 $68 $4,800 $300 $30 $2,000 $52 $52 $3,557 $3,113 $3,708 (7
Slide 62: GP-leds: focus on alignment and high-quality assets
GP-leds: focus on alignment and high-quality assets • Strong alignment: More than half of middle market CVs were >50% of their GP’s latest fund size, reflecting significant alignment between sponsors and investors • Quality: North American buyout assets continued their dominant share of GP-led volum
Slide 63: Secondaries is an undercapitalized market
Secondaries is an undercapitalized market Secondary dry powder as a multiple of market volume is Supply / demand imbalance less than half of typical market equilibrium1 creates buyer friendly environment Equilibrium (3 years) Relative lack of dedicated capital to GP- leds, advantaging early movers I
Slide 64: Daily Valuation Engine
Daily Valuation Engine 20250219-4255872-13438304
Slide 65: Daily Valuation Engine overview and applications
Daily Valuation Engine overview and applications Overview • Quarter-end valuations for private market assets are typically reported with a 60–120 day lag • To estimate today’s value, Adjusted NAVs use the previous quarter’s valuation, and adjust for cashflows to date • DVE builds on this, using publ
Slide 66: Daily Valuation Engine overview and applications
Daily Valuation Engine overview and applications Asset classes Geographies Strategies Private Equity Asia/Australia Primaries The Daily Valuation Engine Africa & Middle East Secondaries (“DVE”) is a model to provide Europe Co-investments quarterly valuations for private Latin America assets leveragi
Slide 67: Q4 2024 PE DVE estimation review
Q4 2024 PE DVE estimation review For Q4 2024, the model estimates a 0.2% gain in USD across StepStone’s SPI Reporting database for PE, and 1.3% for North America Buyout funds . Non-USD fund returns were negatively impacted by FX as the US dollar strengthened in Q4 2024. 0.2% 3.8% -3.5% Asset Class G
Slide 68: Risks and other considerations
RISKS AND OTHER CONSIDERATIONS Risks Associated with Investments. Identifying attractive investment opportunities and the right underlying fund Allocation of Investment Opportunities. StepStone currently makes investments, and in the future will make managers is difficult and involves a high degree
Slide 69: stepstonegroup.com
stepstonegroup.com 20250219-4255872-13438304
StepStone Group — Investor Presentation (February 2025) on 6ix