StepStone Group Inc. 10-K

Item 8. Financial Statements and Supplementary Data. Index to Consolidated Financial Statements Page Report s of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 120 Consolidated Balance Sheets as of March 31, 202 2 and 202 1 125 Consolidated Statements of Income for the Years Ended March 31, 202 2 , 202 1 and 20 2 0 127 Consolidated Statements of Comprehensive Income for the Years Ended March 31, 2022, 2021 and 2020 128 Consolidated Statements of Stockholders’ Equity for the Years Ended March 31, 202 2 , 202 1 and 20 2 0 129 Consolidated Statements of Cash Flows for the Years Ended March 31, 202 2 , 202 1 and 20 2 0 131 Notes to Consolidated Financial Statements 133 119 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of StepStone Group Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of StepStone Group Inc. (successor to StepStone Group LP, as described in Note 1, the “Company”) as of March 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended March 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of March 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 31, 2022 expressed an unqualified opinion thereon. Adoption of ASU No. 2016-02 As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2022 due to the adoption of ASU No. 2016-02, Leases (Topic 842). Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 120 Table of Contents Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of acquired intangible assets for the acquisition of Greenspring Associates, Inc. Description of the Matter As disclosed in Notes 2 and 15 to the consolidated financial statements, on September 20, 2021 the Company acquired Greenspring Associates, Inc. and certain of its affiliates (collectively, “Greenspring”) for total consideration of $898.2 million. The transaction was accounted for as a business combination. Identifiable intangible assets acquired through this business combination primarily consisted of management contracts and client relationships with acquisition-date fair values of $310.9 million and $96.7 million, respectively. Auditing the Company’s accounting for its acquisition of Greenspring Associates Inc. was complex due to the significant estimation uncertainty in determining the fair value of identified intangible assets, which primarily consisted of management contracts and client relationships. The significant estimation uncertainty was primarily due to sensitivity of the fair value to underlying assumptions about future performance of the acquired business in the Company’s model used to measure the management contracts and client relationships intangible assets. These significant assumptions included future fundraising and expected cash inflows and outflows that form the basis of the forecasted results, and the discount rates. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s business combination process. This included management’s review controls over the fair valuation methodology and significant assumptions used to estimate the fair value of the management contracts and client relationships intangible assets and management’s review of the completeness and accuracy of the data used in the management contracts and client relationships valuation model. To test the fair value of the management contracts and customer relationships intangible assets, our procedures included, among others, involving internal valuation specialists to assist in our evaluation of the Company’s valuation methodology and certain assumptions included in the fair value estimate, including the discount rates used in the Company’s valuation model. We tested the expected cash inflows and outflows assumed in the forecasted results, future fundraising assumptions, and the mathematical accuracy of the Company’s valuation model. For example, we performed sensitivity analyses for significant assumptions, compared significant assumptions to current industry, market, and economic trends, the historical results of the acquired business and to the Company’s forecasts. We agreed certain inputs used in developing certain significant assumptions to limited partnership agreements and audited financial statements. We involved more senior, more experienced audit team members to perform audit procedures. 121 Table of Contents Valuation of underlying investments of equity method investments Description of the Matter The Company has investments in funds of $107.0 million and accrued carried interest allocations of $1,480.5 million as of March 31, 2022. As discussed in Notes 2 and 5 to the consolidated financial statements, a significant input to the measurement of the Company’s investments in funds and accrued carried interest allocations is management’s estimate of the fair value of the underlying investments held by the StepStone Funds, specifically co-investment funds which invest in portfolio companies that are valued using significant unobservable inputs. Auditing management’s determination of the fair value of the co-investment fund investments that are valued using significant unobservable inputs was complex and involved a high degree of auditor subjectivity because these investments exhibit higher estimation uncertainty. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s investment valuation process for the co-investment fund investments. This included management’s review controls over the assessment of the valuation techniques and significant unobservable inputs used to estimate the fair value of the co-investment fund investments and management’s review of the completeness and accuracy of the data used in these estimates. Our audit procedures included, among others, evaluating, on a sample basis, the valuation techniques and significant unobservable inputs used by the Company in valuing the co-investment fund investments and testing, on a sample basis, the mathematical accuracy of the related valuation models. For example, for a sample of co-investment fund investments, we performed procedures to evaluate the significant unobservable inputs such as the selected earnings before interest, taxes, depreciation and amortization multiples or revenue multiples that were derived from comparable companies. These procedures included assessing management’s determination of the comparable companies, and, where applicable, comparing the selected multiples to market observed transactions of such companies. In some instances, with the involvement of our valuation specialists, we independently developed fair value estimates using investee specific and market information and compared our estimates to the fair value of the investment. We searched for and evaluated information that corroborated or contradicted the significant unobservable inputs. We also evaluated subsequent events and transactions and considered whether they corroborated or contradicted the year-end valuations. In addition, we involved more senior, more experienced audit team members to perform audit procedures. /s/ Ernst & Young LLP We have served as the Company's auditor since 2009. Los Angeles, CA May 31, 2022 122 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of StepStone Group Inc. Opinion on Internal Control over Financial Reporting We have audited StepStone Group Inc.’s internal control over financial reporting as of March 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, StepStone Group Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 31, 2022, based on the COSO criteria. As indicated in the accompanying Report of Management on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Greenspring Associates Inc. and certain of its affiliates (“Greenspring”), which is included in the 2022 consolidated financial statements of the Company and constituted approximately 32% of total consolidated assets as of March 31, 2022 and approximately 11% of total consolidated net income for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Greenspring. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2022, and the related notes and our report dated May 31, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 123 Table of Contents Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Los Angeles, CA May 31, 2022 124 Table of Contents StepStone Group Inc. Consolidated Balance Sheets (in thousands, except share and per share amounts) As of March 31, 2022 2021 Assets Cash and cash equivalents $ 116,386 $ 179,886 Restricted cash 1,063 3,977 Fees and accounts receivable 34,141 32,096 Due from affiliates 19,369 7,474 Investments: Investments in funds 107,045 74,379 Accrued carried interest allocations 1,480,515 896,523 Legacy Greenspring investments in funds and accrued carried interest allocations (1) 1,334,581 — Deferred income tax assets 27,866 89,439 Lease right-of-use assets, net 61,065 — Other assets and receivables 27,426 24,715 Intangibles, net 398,126 5,491 Goodwill 580,542 6,792 Total assets $ 4,188,125 $ 1,320,772 Liabilities and stockholders’ equity Accounts payable, accrued expenses and other liabilities $ 80,541 $ 47,723 Accrued compensation and benefits 39,966 34,224 Accrued carried interest-related compensation 769,988 465,610 Legacy Greenspring accrued carried interest-related compensation (1) 1,140,101 — Due to affiliates 199,355 113,522 Lease liabilities 70,965 — Debt obligations 62,879 — Total liabilities 2,363,795 661,079 Commitments and contingencies (Note 16) Class A common stock, $ 0.001 par value, 650,000,000 authorized; 61,141,306 and 38,437,500 issued and outstanding as of March 31, 2022 and 2021, respectively 61 38 Class B common stock, $ 0.001 par value, 125,000,000 authorized; 47,149,673 and 56,378,831 issued and outstanding as of March 31, 2022 and 2021, respectively 48 57 Additional paid-in capital 587,243 188,751 Retained earnings 229,615 60,407 Accumulated other comprehensive income 658 155 Total StepStone Group Inc. stockholders’ equity 817,625 249,408 Non-controlling interests in subsidiaries 32,063 25,885 Non-controlling interests in legacy Greenspring entities (1) 194,480 — Non-controlling interests in the Partnership 780,162 384,400 Total stockholders’ equity 1,824,330 659,693 Total liabilities and stockholders’ equity $ 4,188,125 $ 1,320,772 (1) Reflects amounts attributable to consolidated VIEs for which the Company did not acquire any direct economic interests. See notes 5 and 15 for more information. See accompanying notes to consolidated financial statements. 125 Table of Contents StepStone Group Inc. Consolidated Balance Sheets (in thousands) The following presents the portion of the consolidated balances presented above attributable to consolidated variable interest entities. As of March 31, 2022 2021 Assets Cash and cash equivalents $ 19,386 $ 16,833 Restricted cash 1,063 1,074 Fees and accounts receivable 29,060 25,282 Due from affiliates 5,252 3,467 Investments in funds 22,808 13,658 Legacy Greenspring investments in funds and accrued carried interest allocations 1,334,581 — Deferred income tax assets 301 671 Lease right-of-use assets, net 17,206 — Other assets and receivables 5,588 4,340 Total assets $ 1,435,245 $ 65,325 Liabilities Accounts payable, accrued expenses and other liabilities $ 8,548 $ 10,370 Accrued compensation and benefits 14,806 14,705 Legacy Greenspring accrued carried interest-related compensation 1,140,101 — Due to affiliates 190 1,854 Lease liabilities 17,593 — Total liabilities $ 1,181,238 $ 26,929 See accompanying notes to consolidated financial statements. 126 Table of Contents StepStone Group Inc. Consolidated Statements of Income (in thousands, except share and per share amounts) Year Ended March 31, 2022 2021 2020 Revenues Management and advisory fees, net $ 380,257 $ 285,462 $ 235,205 Performance fees: Incentive fees 11,593 5,474 3,410 Carried interest allocations: Realized 200,718 62,953 46,177 Unrealized 585,851 433,827 161,819 Total carried interest allocations 786,569 496,780 207,996 Legacy Greenspring carried interest allocations (1) 187,106 — — Total revenues 1,365,525 787,716 446,611 Expenses Compensation and benefits: Cash-based compensation 197,482 157,123 130,730 Equity-based compensation 13,996 7,899 1,915 Performance fee-related compensation: Realized 91,208 30,532 26,958 Unrealized 312,903 215,508 82,701 Total performance fee-related compensation 404,111 246,040 109,659 Legacy Greenspring performance fee-related compensation (1) 187,106 — — Total compensation and benefits 802,695 411,062 242,304 General, administrative and other 110,468 48,485 52,363 Total expenses 913,163 459,547 294,667 Other income (expense) Investment income 26,160 16,407 6,926 Legacy Greenspring investment income (1) 32,586 — — Interest income 337 413 1,436 Interest expense ( 1,113 ) ( 7,360 ) ( 10,211 ) Other income (loss) 2,249 220 ( 1,355 ) Total other income (expense) 60,219 9,680 ( 3,204 ) Income before income tax 512,581 337,849 148,740 Income tax expense 28,300 23,256 3,955 Net income 484,281 314,593 144,785 Less: Net income attributable to non-controlling interests in subsidiaries 26,608 23,176 12,869 Less: Net income attributable to non-controlling interests in legacy Greenspring entities (1) 32,586 — — Less: Net income attributable to non-controlling interests in the Partnership 231,202 228,783 131,916 Net income attributable to StepStone Group Inc. $ 193,885 $ 62,634 $ — Earnings per share of Class A common stock: Basic $ 3.89 $ 2.11 Diluted $ 3.84 $ 2.06 Weighted-average shares of Class A common stock: Basic 49,833,760 29,657,805 Diluted 53,600,250 33,274,804 Dividends declared per share of Class A common stock $ 0.44 $ 0.07 (1) Reflects amounts attributable to consolidated VIEs for which the Company did not acquire any direct economic interests. See notes 3, 5 and 15 for more information. See accompanying notes to consolidated financial statements. 127 Table of Contents StepStone Group Inc. Consolidated Statements of Comprehensive Income (in thousands) Year Ended March 31, 2022 2021 2020 Net income $ 484,281 $ 314,593 $ 144,785 Other comprehensive income (loss): Foreign currency translation adjustment 329 1,619 145 Unrealized gain (loss) on defined benefit plan, net 1,365 ( 244 ) ( 356 ) Total other comprehensive income (loss) 1,694 1,375 ( 211 ) Comprehensive income before non-controlling interests 485,975 315,968 144,574 Less: Comprehensive income attributable to non-controlling interests in subsidiaries 27,446 23,877 12,763 Less: Comprehensive income attributable to non-controlling interests in legacy Greenspring entities 32,586 — — Less: Comprehensive income attributable to non-controlling interests in the Partnership 231,609 229,339 131,811 Comprehensive income attributable to StepStone Group Inc. $ 194,334 $ 62,752 $ — See accompanying notes to consolidated financial statements. 128 Table of Contents StepStone Group Inc. Consolidated Statements of Stockholders’ Equity (in thousands) Partners’ Capital Class A Common Stock Class B Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Non-Controlling Interests in Subsidiaries Non-Controlling Interests in the Partnership Total Stockholders’ Equity / Partners’ Capital Balance at March 31, 2019 $ 128,426 $ — $ — $ — $ — $ 283 $ 16,953 $ — $ 145,662 Net income 131,916 — — — — — 12,869 — 144,785 Other comprehensive loss — — — — — ( 105 ) ( 106 ) — ( 211 ) Contributed capital 28 — — — — — — — 28 Equity-based compensation 1,915 — — — — — — — 1,915 Sale of non-controlling interests 110,753 — — — — — — — 110,753 Purchase of non-controlling interests ( 113,052 ) — — — — — — — ( 113,052 ) Distributions ( 43,935 ) — — — — — ( 8,978 ) — ( 52,913 ) Balance at March 31, 2020 216,051 — — — — 178 20,738 — 236,967 Net income prior to Reorganization and IPO 45,265 — — — — — 12,428 — 57,693 Other comprehensive income prior to Reorganization and IPO — — — — — 335 350 — 685 Contributed capital prior to Reorganization and IPO 27 — — — — — — — 27 Equity-based compensation prior to Reorganization and IPO 723 — — — — — 2 — 725 Sale of non-controlling interests prior to Reorganization and IPO — — — — — — 3,308 — 3,308 Purchase of non-controlling interests prior to Reorganization and IPO — — — — — — ( 3,308 ) — ( 3,308 ) Distributions prior to Reorganization and IPO ( 50,424 ) — — — — — ( 13,161 ) — ( 63,585 ) Equity reallocation between controlling and non-controlling interests prior to Reorganization and IPO 252 — — — — — ( 252 ) — — Effect of Reorganization and purchase of units in the Partnership ( 211,894 ) 9 73 23,432 — ( 513 ) — 188,893 — Issuance of Class A common stock sold in IPO, net of underwriting discounts — 20 — 337,778 — — — — 337,798 Purchase of partnership interests with IPO net proceeds — — ( 7 ) ( 127,979 ) — — — — ( 127,986 ) Net income subsequent to Reorganization and IPO — — — — 62,634 — 10,748 183,518 256,900 Other comprehensive income subsequent to Reorganization and IPO — — — — — 118 351 221 690 Contributed capital subsequent to Reorganization and IPO — — — — — — 2,709 40 2,749 Equity-based compensation subsequent to Reorganization and IPO — — — 2,239 — — 12 4,923 7,174 Distributions subsequent to Reorganization and IPO — — — — — — ( 8,040 ) ( 26,051 ) ( 34,091 ) Dividends declared subsequent to Reorganization and IPO — — — — ( 2,227 ) — — — ( 2,227 ) Exchange of Class B units for Class A common stock and redemption of corresponding Class B common shares in connection with registered offering subsequent to Reorganization and IPO — 9 ( 9 ) ( 9 ) — — — — ( 9 ) Deferred offering costs — — — ( 3,611 ) — — — ( 7,610 ) ( 11,221 ) Equity reallocation between controlling and non-controlling interests subsequent to Reorganization and IPO — — — ( 40,503 ) — 37 — 40,466 — Deferred tax effect resulting from transactions affecting ownership in the Partnership, including net amounts payable under Tax Receivable Agreements — — — ( 2,596 ) — — — — ( 2,596 ) Balance at March 31, 2021 $ — $ 38 $ 57 $ 188,751 $ 60,407 $ 155 $ 25,885 $ 384,400 $ 659,693 See accompanying notes to consolidated financial statements. 129 Table of Contents StepStone Group Inc. Consolidated Statements of Stockholders’ Equity (in thousands) Class A Common Stock Class B Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Non-Controlling Interests in Subsidiaries Non-Controlling Interests in Legacy Greenspring Entities Non-Controlling Interests in the Partnership Total Stockholders’ Equity Balance at March 31, 2021 $ 38 $ 57 $ 188,751 $ 60,407 $ 155 $ 25,885 $ — $ 384,400 $ 659,693 Net income — — — 193,885 — 26,608 32,586 231,202 484,281 Other comprehensive income — — — — 449 838 — 407 1,694 Contributed capital — — — — — — 15,078 83 15,161 Equity-based compensation — — 6,686 — — 12 — 7,298 13,996 Distributions — — — — — ( 20,692 ) ( 11,326 ) ( 86,778 ) ( 118,796 ) Purchase of non-controlling interests — — ( 657 ) — — ( 1,502 ) — ( 887 ) ( 3,046 ) Dividends declared — — — ( 24,677 ) — — — — ( 24,677 ) Vesting of RSUs 1 — ( 1 ) — — — — — — Class A common stock issued for Greenspring acquisition 13 — 267,842 — — — — 290,743 558,598 Class C Partnership units issued for Greenspring acquisition — — 64,847 — — — — 70,392 135,239 Exchange of Class B units for Class A common stock and redemption of corresponding Class B common shares 9 ( 9 ) ( 9 ) — — — — — ( 9 ) Initial consolidation of legacy Greenspring general partner entities — — — — — — 158,142 — 158,142 Deferred offering costs — — ( 357 ) — — — — ( 296 ) ( 653 ) Equity reallocation between controlling and non-controlling interests — — 115,434 — 54 914 — ( 116,402 ) — Deferred tax effect resulting from transactions affecting ownership in the Partnership, including net amounts payable under Tax Receivable Agreements (1) — — ( 55,293 ) — — — — — ( 55,293 ) Balance at March 31, 2022 $ 61 $ 48 $ 587,243 $ 229,615 $ 658 $ 32,063 $ 194,480 $ 780,162 $ 1,824,330 (1) See notes 11, 14 and 15 for more information. See accompanying notes to consolidated financial statements. 130 Table of Contents StepStone Group Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended March 31, 2022 2021 2020 Cash flows from operating activities Net income $ 484,281 $ 314,593 $ 144,785 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 26,977 5,495 7,078 Unrealized carried interest allocations and investment income ( 603,513 ) ( 444,893 ) ( 164,691 ) Unrealized legacy Greenspring carried interest allocations and investment income ( 119,698 ) — — Unrealized performance fee-related compensation 312,903 215,508 82,701 Unrealized legacy Greenspring performance fee-related compensation 94,944 — — Unrealized gains on marketable securities — — ( 298 ) Write-off / amortization of deferred financing costs 236 3,856 796 Equity-based compensation 13,996 7,899 1,915 Change in deferred income taxes 6,216 15,913 — Fair value adjustment for acquisition-related contingent consideration 9,600 1,608 ( 2 ) Other non-cash activities ( 3,034 ) 70 — Changes in operating assets and liabilities: Fees and accounts receivable ( 1,774 ) ( 6,975 ) ( 851 ) Due from affiliates ( 11,490 ) 2,216 ( 7,379 ) Other assets and receivables 2,091 ( 69 ) ( 3,717 ) Accounts payable, accrued expenses and other liabilities 6,636 9,559 ( 2,807 ) Accrued compensation and benefits 7,107 11,282 7,937 Accrued carried interest-related compensation ( 8,525 ) 12,365 1,974 Due to affiliates ( 2,259 ) 872 ( 1,511 ) Lease right-of-use assets, net and lease liabilities ( 413 ) — — Net cash provided by operating activities 214,281 149,299 65,930 Cash flows from investing activities Purchases of marketable securities — — ( 27,694 ) Proceeds from sales and maturities of marketable securities — — 71,345 Contributions to investments ( 24,571 ) ( 14,047 ) ( 12,505 ) Distributions received from investments 9,510 4,132 5,500 Contributions to investments in legacy Greenspring entities ( 15,078 ) — — Distributions received from investments in legacy Greenspring entities 3,495 — — Cash paid for Greenspring acquisition, net of cash acquired ( 181,529 ) — — Purchases of property and equipment ( 2,103 ) ( 1,258 ) ( 837 ) Other investing activities 35 7 — Net cash provided by (used in) investing activities ( 210,241 ) ( 11,166 ) 35,809 See accompanying notes to consolidated financial statements. 131 Table of Contents StepStone Group Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended March 31, 2022 2021 2020 Cash flows from financing activities Sale of non-controlling interests $ — $ 3,308 $ 110,753 Proceeds from capital contributions from non-controlling interests 83 2,776 28 Proceeds from IPO, net of underwriting discount — 337,798 — Proceeds from revolving credit facility 185,000 — — Deferred financing costs ( 2,356 ) — — Purchase of non-controlling interests ( 3,046 ) ( 131,294 ) ( 107,188 ) Payment of deferred offering costs ( 1,732 ) ( 10,142 ) — Principal payments on term loan — ( 147,000 ) ( 1,500 ) Payments on revolving credit facility ( 120,000 ) — — Distributions to non-controlling interests ( 107,470 ) ( 97,676 ) ( 52,913 ) Proceeds from capital contributions to legacy Greenspring entities 15,078 — — Distributions to non-controlling interests in legacy Greenspring entities ( 11,326 ) — — Dividends paid to common stockholders ( 23,874 ) ( 2,047 ) — Payments to related parties under Tax Receivable Agreements ( 787 ) — — Other financing activities ( 9 ) ( 1,029 ) ( 1,350 ) Net cash used in financing activities ( 70,439 ) ( 45,306 ) ( 52,170 ) Effect of foreign currency exchange rate changes ( 15 ) 1,097 ( 252 ) Net increase (decrease) in cash, cash equivalents and restricted cash ( 66,414 ) 93,924 49,317 Cash, cash equivalents and restricted cash at beginning of period 183,863 89,939 40,622 Cash, cash equivalents and restricted cash at end of period $ 117,449 $ 183,863 $ 89,939 Supplemental disclosures: Interest paid $ 829 $ 3,491 $ 9,355 Taxes paid 11,688 3,413 2,776 Non-cash operating, investing, and financing activities: Purchase of partnership interests payable $ — $ — $ 5,864 Accrued dividends 803 180 — Deferred tax effect resulting from transactions affecting ownership in the Partnership, including net amounts payable under Tax Receivable Agreements ( 55,293 ) ( 2,596 ) — Accrued deferred offering costs — 1,079 — Establishment of lease liabilities in exchange for lease right-of-use assets 79,688 — — Class A common stock issued for Greenspring acquisition 558,598 — — Class C Partnership units issued for Greenspring acquisition 135,239 — — Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 116,386 $ 179,886 $ 89,939 Restricted cash 1,063 3,977 — Total cash, cash equivalents and restricted cash $ 117,449 $ 183,863 $ 89,939 See accompanying notes to consolidated financial statements. 132 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) 1. Organization StepStone Group Inc. (“SSG”) was incorporated in the state of Delaware on November 20, 2019. The company was formed for the purpose of completing an initial public offering (“IPO”) in order to conduct the business of StepStone Group LP (the “Partnership”) as a publicly-traded entity. As of September 18, 2020, in connection with the Reorganization discussed below, SSG became the sole managing member of StepStone Group Holdings LLC (the “General Partner”), the general partner of the Partnership. Unless otherwise specified, “StepStone” or the “Company” refers to SSG and its consolidated subsidiaries, including the Partnership, following the Reorganization and IPO, and to the Partnership and its consolidated subsidiaries prior to the Reorganization and IPO, throughout the remainder of these notes to the consolidated financial statements. The Company is a global private markets investment firm focused on providing customized investment solutions and advisory, data and administrative services to its clients. The Company’s clients include some of the world’s largest public and private defined benefit and defined contribution pension funds, sovereign wealth funds and insurance companies, as well as prominent endowments, foundations, family offices and private wealth clients, including high-net-worth and mass affluent individuals. The Company partners with its clients to develop and build private markets portfolios designed to meet their specific objectives across the private equity, infrastructure, private debt and real estate asset classes. 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”). The Company, through its subsidiaries, acts as the investment advisor and general partner or managing member to separately managed accounts (“SMAs”) and focused commingled funds, including acquired Greenspring funds (collectively, the “StepStone Funds”). Reorganization In connection with the IPO, the Company completed certain transactions as part of a corporate reorganization (the “Reorganization”), which are described below: • SSG amended and restated its certificate of incorporation to, among other things, provide for Class A common stock and Class B common stock. • The Partnership amended its limited partnership agreement to, among other things, provide for Class A units and Class B units. • The General Partner amended and restated its limited liability company agreement to, among other things, appoint SSG as the sole managing member of the General Partner. • SSG redeemed its 100 shares of common stock outstanding. • The Partnership effectuated a series of transactions such that certain blocker entities in which certain pre-IPO institutional investors that held partnership units in the Partnership merged with and into SSG, with SSG surviving. As a result of the mergers, the 100 % owners of the blocker entities acquired 9,112,500 shares of newly issued Class A common stock of SSG. • The Partnership classified the partnership units acquired by SSG as Class A units and reclassified the partnership units held by the continuing limited partners of the Partnership as Class B units. 133 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) • SSG issued to the remaining Class B unitholders one share of Class B common stock for each Class B unit that they owned in exchange for their interests in the General Partner. • Certain of the Class B stockholders entered into a stockholders agreement pursuant to which they agreed to vote all their shares of voting stock, including Class A common stock and Class B common stock, together and in accordance with the instructions of the Class B Committee, which comprises certain members of senior management. Initial Public Offering and Greenspring Acquisition On September 18, 2020, SSG issued 20,125,000 shares of Class A common stock in the IPO at a price of $ 18.00 per share. The net proceeds from the offering totaled $ 337.8 million, net of underwriting discounts of $ 24.5 million and before offering costs of $ 9.7 million that were incurred by the Partnership. SSG used approximately $ 209.8 million of the net proceeds from the offering to acquire 12,500,000 newly issued Class A units of the Partnership and approximately $ 128.0 million to purchase 7,625,000 Class B units from certain of the Partnership’s existing unitholders, including certain members of senior management. In connection with the Greenspring acquisition (see note 15), the Company issued 12,686,756 shares of its Class A common stock and the Partnership issued 3,071,519 newly created Class C units of the Partnership, each of which is exchangeable into one share of Class A common stock, in each case subject to certain adjustments and restrictions (see note 14). Following the Reorganization and IPO, SSG became a holding company whose principal asset is a controlling financial interest in the Partnership through its ownership of all of the Partnership’s Class A units and 100 % of the membership interests in the General Partner of the Partnership. SSG acts as the sole managing member of the General Partner of the Partnership and, as a result, indirectly operates and controls all of the Partnership’s business and affairs. As a result, SSG consolidates the financial results of the Partnership and reports non-controlling interests related to the Class B and Class C units of the Partnership which are not owned by SSG. The assets and liabilities of the Partnership represent substantially all of SSG’s consolidated assets and liabilities, with the exception of certain deferred income taxes and payables due to affiliates pursuant to tax receivable agreements (see note 11). Each share of Class A common stock is entitled to one vote and each share of Class B common stock is entitled to five votes. As of March 31, 2022, SSG held approximately 55.0 % of the economic interest in the Partnership. As the Partnership’s limited partners exchange their Class B and Class C units into SSG’s Class A common stock in the future, SSG’s economic interest in the Partnership will increase relative to that of the Class B and Class C unitholders. The Reorganization was considered a transaction between entities under common control. As a result, the consolidated financial statements for periods prior to the Reorganization and IPO are the consolidated financial statements of the Partnership as the predecessor to SSG for accounting and reporting purposes. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The consolidated financial statements include the accounts of the Company, its wholly-owned or majority-owned subsidiaries and entities in which the Company is deemed to have a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. All intercompany balances and transactions have been eliminated in consolidation. 134 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Certain of the StepStone Funds are investment companies that follow specialized accounting under GAAP and reflect their investments at estimated fair value. Accordingly, the carrying value of the Company’s equity method investments in such entities retains the specialized accounting. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management’s estimates and assumptions are based on historical experience and other factors, and these estimates and assumptions require management to exercise judgment in the process of applying the Company’s accounting policies. Factors that may affect or influence management’s estimates and assumptions could include expectations related to future events that management has deemed reasonable under the circumstances. Assumptions and estimates related to the valuation of investments, which directly affect carried interest allocations, carried interest related compensation, and the carrying amount of the Company’s equity in affiliated companies, involve a higher degree of judgment and complexity, and these assumptions and estimates may significantly affect the consolidated financial statements. Actual results could differ from these estimates and those differences may be material. Consolidation The Company consolidates all entities that it controls through a majority voting interest or as the primary beneficiary of a variable interest entity (“VIE”). Under the VIE model, management first assesses whether the Company has a variable interest in an entity. In evaluating whether the Company holds a variable interest, fees received as a decision maker or in exchange for services (including management fees, incentive fees and carried interest allocations) that are customary and commensurate with the level of services provided, and where the Company does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, are not considered variable interests. If the Company has a variable interest in an entity, management further assesses whether that entity is a VIE, and if so, whether the Company is the primary beneficiary under the VIE model. Entities that do not qualify as VIEs are assessed for consolidation under the voting interest model. The consolidation analysis can generally be performed qualitatively; however, in certain situations a quantitative analysis may also be performed. Investments and redemptions (either by the Company, affiliates of the Company or third parties) or amendments to the governing documents of the respective StepStone Funds that are VIEs could affect the entity’s status as a VIE or the determination of the primary beneficiary. Under the VIE model, an entity is deemed to be the primary beneficiary of a VIE if it holds a controlling financial interest. A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly affect the entity’s economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. Management determines whether the Company is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion at each reporting date. When assessing whether the Company is the primary beneficiary of a VIE, management evaluates whether the Company’s involvement, through holding interests directly or indirectly in an entity or contractually through other variable interests, would give the Company a controlling financial interest. This analysis includes an evaluation of the Company’s control rights, as well as the economic interests that the Company holds in the VIE, including indirectly through related parties. 135 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) The Company provides investment advisory services to the StepStone Funds, which have third-party clients. These funds are investment companies and are typically organized as limited partnerships or limited liability companies for which the Company, through its operating subsidiaries, acts as the general partner or managing member. A limited partnership or similar entity is a VIE if the unaffiliated limited partners or members do not have substantive rights to terminate or liquidate the fund or remove the general partner or substantive rights to participate. Certain StepStone Funds are VIEs because they have not granted unaffiliated limited partners or members substantive rights to terminate the fund or remove the general partner or substantive rights to participate. The Company does not consolidate these StepStone Funds because it is not the primary beneficiary of those funds, primarily because its fee arrangements are considered customary and commensurate and thus not deemed to be variable interests, and it does not hold any other interests in those funds that are considered more than insignificant. The Company has determined that certain of its operating subsidiaries, StepStone Group Real Assets LP (“SRA”), StepStone Group Real Estate LP (“SRE”) and Swiss Capital Alternative Investments AG (“Swiss Capital”), are VIEs, and that the Company is the primary beneficiary of each entity because it has a controlling financial interest in each entity; accordingly, the Company consolidates these entities. The assets and liabilities of the consolidated VIEs are presented gross in the consolidated balance sheets. The assets of the consolidated VIEs may only be used to settle obligations of the consolidated VIEs. See note 4 for more information on both consolidated and unconsolidated VIEs. In connection with the Greenspring acquisition, the Company, indirectly through its subsidiaries, became the sole and/or managing member of certain entities, each of which is the general partner of an investment fund (“legacy Greenspring general partner entities”). The Company did not acquire any direct economic interests attributable to the legacy Greenspring general partner entities, including legacy Greenspring investments in funds and carried interest allocations. However, certain arrangements negotiated as part of the acquisition represent variable interests that could be significant. The Company determined that the legacy Greenspring general partner entities are VIEs and it is the primary beneficiary of each such entity because it has a controlling financial interest in each entity. As a result, the Company consolidates these entities. Non-Controlling Interests Non-controlling interests (“NCI”) reflect the portion of income or loss and the corresponding equity attributable to third-party equity holders and employees in certain consolidated subsidiaries that are not 100% owned by the Company. Non-controlling interests are presented as separate components of stockholders’ equity on the Company’s consolidated balance sheets to clearly distinguish between the Company’s interests and the economic interests of third parties and employees in those entities. Net income (loss) attributable to SSG, as reported in the consolidated statements of income, is presented net of the portion of net income (loss) attributable to holders of non-controlling interests. See note 14 for more information on ownership interests in the Company. Non-controlling interests in subsidiaries represent the economic interests in SRA, SRE, and Swiss Capital (the variable interest entities included in the Company’s consolidated financial statements) held by third parties and employees in those 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. Non-controlling interests in legacy Greenspring entities represent the economic interests in the legacy Greenspring general partner entities. The Company did not acquire any direct economic interests in the legacy Greenspring general partner entities. 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. 136 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Non-controlling interests in the Partnership represent the economic interests related to the Class B and Class C units of the Partnership which are not owned by SSG. Non-controlling interests in the Partnership are allocated a share of income or loss in the Partnership in proportion to their relative ownership interests, after consideration of contractual arrangements that govern allocations of income or loss. Prior to the Reorganization and IPO, all of the Company’s net income related to the Partnership and therefore has been presented as non-controlling interests in the Partnership. Accounting for Differing Fiscal Periods The StepStone Funds primarily have a fiscal year end as of December 31. The Company accounts for its investments in the StepStone Funds on a three-month lag due to the timing of receipt of financial information from the investments held by the StepStone Funds. The StepStone Funds primarily invest in private markets funds that generally require at least 90 days following the calendar year end to provide audited financial statements. As a result, the Company uses the December 31 audited financial statements of the StepStone Funds, which reflect the underlying private markets funds as of December 31 to record its investments (including any carried interest allocated by those investments) for its fiscal year-end consolidated financial statements as of March 31. The Company further adjusts the reported carrying values of its investments in the StepStone Funds for its share of capital contributions to and distributions from the StepStone Funds during the three-month lag period. The Company does not account for management and advisory fees or incentive fees on a three-month lag. To the extent that management becomes aware of any material events that affect the StepStone Funds during the three-month lag period, the effect of the events would be disclosed in the notes to the consolidated financial statements. Current Events The Company is continuing to closely monitor developments related to COVID-19, inflation, rising interest rates and the ongoing Russia-Ukraine conflict, and assess the impact on financial markets and the Company’s business. The Company’s future results may be adversely affected by slowdowns in fundraising activity and the pace of capital deployment, which could result in delayed or decreased management fees. 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 the Company’s consolidated financial statements. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents include cash held in banks, money market funds and highly-liquid investments with original maturities of three months or less at the time of purchase. Restricted cash consists of cash that the Company is contractually obligated to maintain to secure its letters of credit used primarily related to its office facilities and other obligations. Fees and Accounts Receivable Fees and accounts receivable represent contractual amounts due to the Company for management, advisory and incentive fees, net of allowances as applicable. The Company considers fees and accounts receivable to be fully collectible. Accordingly, no allowance for doubtful accounts has been established as of March 31, 2022 and 2021. If any accounts or portion thereof are deemed uncollectible, such amounts are expensed when that determination is made. 137 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Due from Affiliates Due from affiliates primarily relates to fees and accounts receivable from the StepStone Funds, advances made on behalf of the StepStone Funds for the payment of certain organization and operating costs and expenses for which the Company is subsequently reimbursed, and amounts due from employees. See note 13 for further disclosure of related party transactions. Fair Value Measurements GAAP establishes a hierarchical disclosure framework, which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace – including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and therefore a lesser degree of judgment is used in measuring their fair value. Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of their fair values, as follows: • Level I – Pricing inputs are unadjusted, quoted prices in active markets for identical assets or liabilities as of the measurement date. • Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the measurement date, and fair value is determined through the use of models or other valuation methodologies. The types of financial instruments classified in this category include less liquid securities traded in active markets and securities traded in other than active markets. • Level III – Pricing inputs are unobservable for the financial instruments and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the financial instrument. The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors including, for example, the type of instrument, whether the instrument has recently been issued, whether the instrument is traded on an active exchange or in the secondary market, and current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for financial instruments categorized in Level III. The variability and availability of the observable inputs affected by the factors described above may result in transfers between Levels I, II, and III. 138 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) The Company considers its cash, cash equivalents, restricted cash, fees and accounts receivable, accounts payable, investments, revolving credit facility and contingent consideration balances to be financial instruments. The carrying amounts of cash, cash equivalents, restricted cash, fees and accounts receivable and accounts payable equal or approximate their fair values due to their nature and/or the relatively short period over which they are held. See notes 6 and 9 for additional details regarding the fair value of the Company’s contingent consideration and revolving credit facility balances, respectively. Investments Investments primarily include the Company’s ownership interests in the StepStone Funds, as general partner or managing member of such funds. The Company accounts for all investments in which it has or is otherwise presumed to have significant influence, but not control, including the StepStone Funds, using the equity method of accounting. The carrying value of these equity method investments is determined based on amounts invested by the Company, adjusted for the Company’s share in the earnings or losses of each investee, after consideration of contractual arrangements that govern allocations of income or loss (including carried interest allocations), less distributions received. Investments include the Company’s cumulative accrued carried interest allocations from the StepStone Funds, which primarily represent performance-based capital allocations, assuming the StepStone Funds were liquidated as of each reporting date in accordance with the funds’ governing documents. Legacy Greenspring investments in funds and accrued carried interest allocations represent the economic interests held by the legacy Greenspring general partner entities in certain funds for which the Company does not have any direct economic interests. All of the economics in respect of such interests are payable to employees and are therefore reflected as non-controlling interests in legacy Greenspring entities and legacy Greenspring performance fee-related compensation. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. Management's determination of fair value for investments in the underlying funds includes various valuation techniques. These techniques may include a market approach, recent transaction price, net asset value approach, or discounted cash flows, and may use one or more significant unobservable inputs such as EBITDA, revenue multiples, discount rates, weighted average cost of capital, exit multiples, or terminal growth rates. Leases On April 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) on a prospective basis. As a result, prior period amounts were not adjusted to reflect the impact of the standard. The standard established a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the consolidated balance sheets for all leases with terms longer than 12 months. Under the previous guidance, operating leases were not recognized by the Company in the consolidated balance sheets as a lessee. The guidance did not significantly change the recognition, measurement and presentation of expenses in the consolidated statements of income or cash flows arising from a lease by a lessee. The adoption of this standard did not have a material impact on the consolidated statements of income as substantially all of the Company’s leases remained classified as operating leases and recognized as expense on a straight-line basis. However, the adoption resulted in a significant gross-up in total assets and total liabilities on the Company’s consolidated balance sheets. The Company recognized right-of-use assets of approximately $ 66.7 million and liabilities of approximately $ 76.9 million related to its operating leases which represented the aggregate discounted amount of the Company’s minimum lease obligations as of the adoption date. 139 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) The Company determines whether an arrangement contains a lease at inception of the arrangement. A lease is a contract that provides the right to control an identified asset for a period of time in exchange for consideration. For identified leases, the Company determines the classification as either an operating or finance lease. The Company’s identified leases primarily consist of operating lease agreements for office space and certain equipment, as the lessee. Operating leases are included in lease right-of-use-assets, net and lease liabilities in the consolidated balance sheets. Certain leases include lease and non-lease components, which the Company accounts for as a single lease component. Lease ROU assets and lease liabilities are measured based on the present value of future minimum lease payments over the lease term at the commencement date. Lease ROU assets include initial direct costs incurred by the Company and are presented net of deferred rent and lease incentives. The Company uses its incremental borrowing rate in determining the present value of future minimum lease payments. The Company’s lease terms may include options to extend or terminate the lease, which are included in the measurement of ROU assets and lease liabilities when it is reasonably certain that the Company will exercise those options. Operating lease expense associated with minimum lease payments is recognized on a straight-line basis over the lease term in general, administrative and other expenses in the consolidated statements of income. Minimum lease payments for leases with an initial term of 12 months or less are not recorded in the consolidated balance sheets. See note 16 for more information. Property and Equipment Property and equipment primarily consist of leasehold improvements, furniture, equipment, computer hardware and software and are stated at cost, less accumulated depreciation and amortization, with the net carrying amount included in other assets and receivables in the consolidated balance sheets. Property and equipment are depreciated over their estimated useful lives using the straight-line method, and the corresponding depreciation expense is included in general, administrative and other expenses in the consolidated statements of income. Property and equipment are depreciated over a period of five to seven years . Leasehold improvements are amortized over the shorter of their useful lives or remaining lease terms. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The Company did not recognize any impairment charges related to property and equipment during each of the fiscal years ended March 31, 2022, 2021 and 2020. Foreign Currency The Company consolidates certain entities that have a non-U.S. dollar functional currency. Non-U.S. dollar denominated assets and liabilities are translated using the exchange rates prevailing at the end of each reporting period and income and expenses are translated using the weighted-average exchange rate for each reporting period. Cumulative translation adjustments arising from the translation of non-U.S. dollar denominated entities are included in other comprehensive income (loss) within the consolidated financial statements until realized. Gains and losses resulting from foreign-currency transactions denominated in a currency other than an entity’s functional currency are reported in other income (loss) in the consolidated statements of income. These transaction gains and (losses) totaled $( 1.1 ) million, $ 0.6 million and $( 1.0 ) million for the years ended March 31, 2022, 2021 and 2020, respectively. 140 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Business Combinations The Company accounts for business combinations using the acquisition method of accounting, under which the purchase price of an acquisition is allocated to the assets acquired and liabilities assumed based on their fair values, as determined by management at the acquisition date. Contingent consideration obligations that are elements of consideration transferred are recognized at the acquisition date as part of the fair value transferred in exchange for the acquired business. Contingent consideration arrangements are revalued to fair value each reporting period. Examples of critical estimates in valuing certain of the intangible assets acquired include, but are not limited to, future expected cash inflows and outflows, future fundraising assumptions, expected useful life, discount rates and income tax rates. Acquisition-related costs incurred in connection with a business combination are expensed as incurred and are included in general, administrative and other expenses in the consolidated statements of income. Intangibles and Goodwill The Company’s finite-lived intangible assets consist of acquired contractual rights to earn future management and advisory fee income and client relationships. Finite-lived intangible assets are amortized over their estimated useful lives, which range from 8 to 10 years. The Company did not have any intangible assets that were deemed to have an indefinite life as of March 31, 2022. Finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. There were no impairment charges related to the Company’s finite-lived intangible assets during the years ended March 31, 2022, 2021 and 2020. Goodwill represents the excess amount of consideration transferred in a business combination above the fair value of the identifiable net assets. Goodwill is assessed for impairment at least annually using a qualitative and, if necessary, a quantitative approach. The Company performs its annual goodwill impairment test as of January 1, or more frequently, if events and circumstances indicate that an impairment may exist. Goodwill is tested for impairment at the reporting unit level. The initial assessment for impairment under the qualitative approach is to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If the qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than the carrying amount, a quantitative assessment is performed to measure the amount of impairment loss, if any. The quantitative assessment includes comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized equal to the lesser of (a) the difference between the carrying amount of the reporting unit and its fair value and (b) the total carrying amount of the reporting unit’s goodwill. The Company performed annual goodwill impairment assessments as of January 1, 2022 and 2021 and determined that there was no impairment of goodwill as of either date. Revenues The Company recognizes revenue in accordance with Accounting Standards Codification Topic 606 (“ASC 606”), Revenue from Contracts with Customers . Revenue is recognized in a manner that depicts the transfer of promised goods or services to customers and for an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The application of ASC 606 requires an entity to identify its contract(s) with a customer, identify the performance obligations in a contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. In determining the transaction price, variable consideration is included only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved. The Company has elected to apply the variable consideration allocation exception for its fee arrangements with its customers. 141 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Management and Advisory Fees, Net The Company earns management fees for services provided to its SMAs and focused commingled funds. The Company earns advisory fees for services provided to advisory clients where the Company does not have discretion over investment decisions. The Company considers its performance obligations in its customer contracts from which it earns management and advisory fees to be one or more of the following, based on the services promised: asset management services, advisory services and/or the arrangement of administrative services. The Company recognizes revenues from asset management services and advisory services when control of the promised services is transferred to customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those services. SMAs are generally contractual arrangements involving an investment management agreement between the Company and a single client, and are typically structured as a partnership or limited liability company for which a subsidiary of SSG serves as the general partner or managing member. Focused commingled funds are structured as limited partnerships or limited liability companies with multiple clients, for which a subsidiary of the Company serves as the general partner or managing member. The Company determined that the individual client or single limited partner or member is the customer with respect to SMAs and advisory clients, while the investment fund is generally considered to be the customer for arrangements with focused commingled funds. When asset management services and the arrangement of administrative services are the performance obligations promised in a contract, the Company satisfies these performance obligations over time because the customer simultaneously receives and consumes the benefits of the services as they are performed. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised services to the customer. Management fees earned from these contracts where the Company has discretion over investment decisions are generally calculated based on a percentage of unaffiliated committed capital or net invested capital, and these amounts are typically billed quarterly. For certain investment funds, management fees are initially based on committed capital during the investment period and on net invested capital through the remainder of the fund’s term. In addition, the management fee rate charged may also be reduced for certain investment funds depending on the contractual arrangement. The management fee basis is subject to factors outside of the Company’s control. Therefore, estimates of future period management fees are not included in the transaction price because those estimates would be considered constrained. Advisory fees from contracts where the Company does not have discretion over investment decisions are generally based on fixed amounts and typically billed quarterly. Management fees generally exclude reimbursements for expenses paid by the Company on behalf of its customers, including amounts related to certain professional fees and other fund administrative expenses pursuant to the fund’s governing documents. For professional and administrative services that the Company arranges to be performed by third parties on behalf of investment funds, management has concluded that the nature of its promise is to arrange for the services to be provided and, accordingly, the Company does not control the services provided by the third parties before they are transferred to the customer. Therefore, the Company is acting as an agent, and the reimbursements for these professional fees paid on behalf of the investment funds are generally presented on a net basis. The Company and certain investment funds that it manages have distribution and service agreements with third-party financial institutions, whereby the Company pays a portion of the fees it receives to such institutions for ongoing distribution and servicing of customer accounts. Management has concluded that the Company does not act as principal for the third-party services, as the Company does not control the services provided by the third parties before they are transferred to the customer. Therefore, the Company is acting as an agent, and the management fees are recorded net of these service fees. 142 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) The Company may incur certain costs in connection with satisfying its performance obligations for investment management services – primarily employee travel costs and certain professional fees – for which it receives reimbursements from its customers. For reimbursable employee travel costs and certain professional fees, the Company concluded it controls the services provided by its employees and other parties and, therefore, is acting as principal. Accordingly, the Company records the reimbursement for these costs incurred on a gross basis – that is, as revenue in management and advisory fees, net and expense in general, administrative and other expenses in the consolidated statements of income. For reimbursable costs incurred in connection with satisfying its performance obligations for administration services, the Company concluded it does not control the services provided by its employees and other parties and, therefore, is acting as agent. Accordingly, the Company records the reimbursement for these costs incurred on a net basis. Performance Fees The Company earns two types of performance fee revenues: incentive fees and carried interest allocations, as described below. Incentive fees are generally calculated as a percentage of the profits (up to 10 %) earned in respect of certain accounts for which the Company is the investment adviser, subject to the achievement of minimum return levels or performance benchmarks. Incentive fees are a form of variable consideration and represent contractual fee arrangements in the Company’s contracts with its customers. Incentive fees are typically subject to reversal until the end of a defined performance period, as these fees are affected by changes in the fair value of the assets under management or advisement over such performance period. Moreover, incentive fees that are received prior to the end of the defined performance period are typically subject to clawback, net of tax. The Company recognizes 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. 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, commonly referred to as carried interest, to the Company from unaffiliated limited partners in the StepStone Funds in which the Company holds an equity interest. The Company is entitled to a carried interest allocation (typically 5 % to 15 %) based on cumulative fund or account performance to date, irrespective of whether such amounts have been realized. These carried interest allocations are subject to the achievement of minimum return levels (typically 5 % to 10 %) in accordance with the terms set forth in each respective fund’s governing documents. The Company accounts for its investment balances in the StepStone Funds, including carried interest allocations, under the equity method of accounting because it is presumed to have significant influence as the general partner or managing member. Accordingly, carried interest allocations are not deemed to be within the scope of ASC 606. 143 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Legacy Greenspring carried interest allocations reflect 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. The legacy Greenspring general partner entities are entitled to a carried interest allocation (typically 5 % to 20 %) based on cumulative fund or account performance to date, irrespective of whether such amounts have been realized. The Company accounts for the investment balances in the legacy Greenspring funds, including carried interest allocations, under the equity method of accounting because it is presumed to have significant influence as the general partner or managing member. Accordingly, legacy Greenspring carried interest allocations are not deemed to be within the scope of ASC 606. The Company does not hold any direct economic interests in the legacy Greenspring general partner entities and thus is not entitled to any carried interest allocation from the legacy funds. All of the carried interest allocations in respect of the 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. The Company recognizes revenue attributable to carried interest allocations from a fund based on the amount that would be due to the Company pursuant to the fund’s governing documents, assuming the fund was liquidated based on the current fair value of its underlying investments as of that date. Accordingly, the amount recognized as carried interest allocation revenue reflects the Company’s 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. The Company records the amount of carried interest allocated to the Company as of each period end as accrued carried interest allocations receivable, which is included as a component of investments in the consolidated balance sheets. Management's determination of fair value for investments in the underlying funds includes various valuation techniques. These techniques may include a market approach, recent transaction price, net asset value approach, or discounted cash flows, and may use one or more significant unobservable inputs such as EBITDA, revenue multiples, discount rates, weighted average cost of capital, exit multiples, or terminal growth rates. Carried interest is realized when an underlying investment is profitably disposed of and the fund’s cumulative returns are in excess of the specific hurdle rates, as defined in the applicable governing documents. Carried interest is subject to reversal to the extent that the amount received to date exceeds the amount due to the Company based on cumulative results. As such, a liability is accrued for potential clawback obligations if amounts previously distributed to the Company would require repayment to a fund if such fund were to be liquidated based on the current fair value of their underlying investments as of the reporting date. Actual repayment obligations generally do not become realized until the end of a fund’s life. As of March 31, 2022 and 2021, no material amounts for potential clawback obligations had been accrued. Compensation and Benefits Cash-based compensation expense primarily includes salaries, bonuses, employee benefits and employer-related payroll taxes. Bonuses are accrued over the service period in which they are earned. 144 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Equity-based compensation represents grants of equity-based awards or arrangements to certain employees and directors. The Company accounts for grants of equity-based awards, including restricted stock units (“RSUs”), to certain employees and directors at fair value as of the grant date. The Company recognizes non-cash compensation expense attributable to these grants on a straight-line basis over the requisite service period, which is generally the vesting period. Expense related to grants of equity-based awards is recognized as equity-based compensation expense in the consolidated statements of income. The fair value of RSUs is determined by the closing stock price on the grant date. Forfeitures of equity-based awards are recognized as they occur. See note 10 for additional information regarding the Company’s accounting for equity-based awards. Performance fee-related compensation represents the portion of carried interest allocation revenue and incentive fees that have been awarded to employees as a form of long-term incentive compensation. Performance fee-related compensation is generally tied to the investment performance of the StepStone Funds. Approximately 50% of carried interest allocation revenue is awarded to employees as part of the Company’s long-term incentive compensation plan. Carried interest-related compensation is accounted for as compensation expense in conjunction with the related carried interest allocation revenue and, until paid, is recorded as a component of accrued carried interest-related compensation in the consolidated balance sheets. Carried interest-related compensation expense also includes the portion of net carried interest allocation revenue attributable to equity holders of the Company’s consolidated subsidiaries that are not 100% owned. Amounts presented as realized indicate the amounts paid or payable to employees based on the receipt of carried interest allocation revenue from realized investment activity. Carried interest-related compensation expense may be subject to reversal to the extent that the related carried interest allocation revenue is reversed. Carried interest-related compensation paid to employees may be subject to clawback on an after-tax basis under certain scenarios. To date, no material amounts of realized carried interest-related compensation have been reversed. Incentive fee-related compensation is accrued as compensation expense when it is probable and estimable that payment will be made in accordance with the applicable governing agreement. Legacy Greenspring performance fee-related compensation represents the legacy Greenspring carried interest allocations, which is entirely payable to certain employees. Legacy Greenspring carried interest-related compensation is accounted for as compensation expense in conjunction with the related legacy Greenspring carried interest allocation revenue and, until paid, is recorded as a component of legacy Greenspring accrued carried interest-related compensation in the consolidated balance sheets. 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. General, Administrative and Other General, administrative and other includes occupancy, travel and related costs, insurance, legal and other professional fees, depreciation, amortization of intangible assets, system-related costs, and other general costs associated with operating the Company’s business. 145 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Other Income (Expense) Investment income primarily represents the share of earnings from the investments the Company makes in its SMAs and focused commingled funds. The Company, either directly or through its subsidiaries, generally has a general partner interest in the StepStone Funds, which invest in primary funds, secondary funds and co-investment funds, or a combination thereof. Investment income will increase or decrease based on the earnings of the StepStone Funds, which are primarily driven by net realized and unrealized gains (losses) on the underlying investments held by the funds. The Company’s co-investment funds invest in underlying portfolio companies and therefore their valuation changes from period to period are more influenced by individual companies than the Company’s primary and secondary funds, which have exposures across multiple portfolio companies in underlying private markets funds. The Company’s SMAs and focused commingled funds invest across various industries, strategies and geographies. Consequently, the Company’s general partner investments do not include any significant concentrations in a specific sector or geography outside the United States. Investment income excludes carried interest allocations, which are presented as revenues as described above. Legacy Greenspring investment income represents the share of earnings from the investments the Company makes in certain legacy Greenspring funds through the legacy Greenspring general partner entities. The Company has no direct economic interests in the legacy Greenspring general partner entities. As a result, all such income is reflected as non-controlling interests in legacy Greenspring entities. Legacy Greenspring investment income will increase or decrease based on the earnings of such legacy Greenspring funds, which are primarily driven by net realized and unrealized gains (losses) on the underlying investments held by the funds. Interest income consists of income earned on cash, cash equivalents, restricted cash and certificates of deposit. Interest expense primarily consists of the interest expense on the Revolver and the Company’s previously outstanding term loan, as well as the related amortization of deferred financing costs and amortization of original issue discount. The year ended March 31, 2021 includes a $ 3.5 million charge related to the write-off of unamortized debt issuance costs and discount in connection with the full repayment of the Company’s outstanding term loan in connection with the IPO in September 2020. Other income (loss) includes foreign currency transaction gains and losses and non-operating activities. Income Taxes SSG is a corporation for U.S. federal income tax purposes and therefore is subject to U.S. federal and state income taxes on its share of taxable income generated by the Partnership. The Partnership is treated as a pass-through entity for U.S. federal and state income tax purposes. As such, income generated by the Partnership flows through to its limited partners, including SSG, and is generally not subject to U.S. federal or state income tax at the Partnership level. The Partnership’s non-U.S. subsidiaries generally operate as corporate entities in non-U.S. jurisdictions, with certain of these entities subject to non-U.S. income taxes. Additionally, certain subsidiaries are subject to local jurisdiction taxes at the entity level, which are reflected within income tax expense in the consolidated statements of income. As a result, the Partnership does not record U.S. federal and state income taxes on income in the Partnership or its subsidiaries, except for certain local and foreign income taxes discussed above. 146 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Taxes are accounted for using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases, using tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period when the change is enacted. Deferred tax liabilities are included within accounts payable, accrued expenses and other liabilities in the consolidated balance sheets. The principal items giving rise to temporary differences are certain basis differences resulting from exchanges of Partnership units. See Tax Receivable Agreements below. Deferred tax assets are reduced by a valuation allowance when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent on the amount, timing and character of the Company’s future taxable income. When evaluating the realizability of deferred tax assets, all evidence – both positive and negative – is considered. This evidence includes, but is not limited to, expectations regarding future earnings, future reversals of existing temporary tax differences and tax planning strategies. The Company is subject to the provisions of ASC Subtopic 740-10, Accounting for Uncertainty in Income Taxes . This standard establishes consistent thresholds as it relates to accounting for income taxes. It defines the threshold for recognizing the benefits of tax return positions in the financial statements as more-likely-than-not to be sustained by the relevant taxing authority and requires measurement of a tax position meeting the more-likely-than-not criterion, based on the largest benefit that is more than 50% likely to be realized. If upon performance of an assessment pursuant to this subtopic, management determines that uncertainties in tax positions exist that do not meet the minimum threshold for recognition of the related tax benefit, a liability is recorded in the consolidated financial statements. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as interest expense and general, administrative and other expenses, respectively, in the consolidated statements of income. See note 11 for more information. Tax Receivable Agreements SSG has entered into an Exchanges Tax Receivable Agreement (the “Exchanges Tax Receivable Agreement”) with the partners of the Partnership as of the date of the IPO and a Reorganization Tax Receivable Agreement with certain pre-IPO institutional investors (together, with the Exchanges Tax Receivable Agreement, the “Tax Receivable Agreements”). The Tax Receivable Agreements provide for payment by SSG to such partners and pre-IPO institutional investors of the Partnership of 85% of the amount of the net cash tax savings, if any, that SSG realizes (or, under certain circumstances, is deemed to realize) as a result of increases in tax basis (and utilization of certain other tax benefits) resulting from (i) SSG’s acquisition of such partners’ and institutional investors’ Partnership units and (ii) in the case of the Exchanges Tax Receivable Agreement, any payments SSG makes under the Exchanges Tax Receivable Agreement (including tax benefits related to imputed interest). SSG will retain the benefit of the remaining 15% of these net cash tax savings under both Tax Receivable Agreements. In connection with the Greenspring acquisition, the sellers receiving Class C units of the Partnership became parties to the Exchanges Tax Receivable Agreement. See notes 14 and 15 for more information. 147 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Accumulated Other Comprehensive Income The Company’s accumulated other comprehensive income consists of foreign currency translation adjustments and unrealized gains and losses on the defined benefit plan sponsored by one of its subsidiaries. The components of accumulated other comprehensive income were as follows: As of March 31, 2022 2021 Foreign currency translation adjustments $ 331 $ 208 Unrealized gain (loss) on defined benefit plan, net 327 ( 53 ) Accumulated other comprehensive income $ 658 $ 155 Segments The Company operates as one business, a fully-integrated private markets solution provider. The Company’s chief operating decision maker, which consists of the Company’s co-chief executive officers together, through December 31, 2021, and the chief executive officer beginning January 1, 2022, utilizes a consolidated approach to assess the performance of and allocate resources to the business. Accordingly, management has concluded that the Company consists of a single operating segment and single reportable segment for accounting and financial reporting purposes. Concentrations of Risk Financial instruments that potentially subject the Company to concentrations of credit risk or other risks consist principally of cash, cash equivalents, restricted cash, investments and fees receivable. The majority of the Company’s cash, cash equivalents and restricted cash is held in large, high credit quality financial institutions. Substantially all cash amounts on deposit with these large financial institutions exceed federally insured limits; however, based upon an assessment of the financial condition and the reputations of these financial institutions, management believes that the Company’s exposure to credit risk is remote. The concentration of credit risk related to fees receivable is generally reduced by the relatively short payment terms extended to the Company’s clients. Amounts due to the Company in the form of carried interest allocations, which are reported as a component of investments in the consolidated balance sheets, remain subject to investment performance risk. In certain cases, carried interest allocations that have been distributed to the Company may remain subject to clawback, pursuant to the terms of the governing documents of the related funds. Refer to the discussion of carried interest above in this note 2 for additional details regarding the investment performance and clawback risk associated with carried interest allocations that have been recognized in income by the Company and/or recorded as accrued carried interest allocations in the consolidated balance sheets. Recent Accounting Pronouncements The Company considers the applicability and impact of all ASU updates issued by the Financial Accounting Standards Board (“FASB”). ASUs issued during the current period not listed below were assessed and determined to either be not applicable to the Company, or not expected to have a material impact on the consolidated financial statements. 148 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which modifies ASC 740 to simplify the accounting for income taxes. The guidance, among other changes, (i) provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and (ii) provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. This guidance is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. The Company adopted this guidance on April 1, 2021. Adoption of this guidance did not have a material effect on the consolidated financial statements. In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments , which modifies ASC 842 to amend the lease classification requirements for lessors to align with practice under ASC Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if the lease would have been classified as a sales-type lease or a direct financing lease under ASC 842, and the lessor would have otherwise recognized a day-one loss on the investment in the lease. This guidance is effective for annual periods beginning after December 15, 2021 and interim periods within those annual periods. The Company plans to adopt this guidance on April 1, 2022, and does not expect the adoption of this guidance to have a material effect on the consolidated financial statements. In November 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which modifies ASC 805 to require an acquiring entity in a business combination to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. This guidance is effective for annual and interim periods beginning after December 15, 2022, with early adoption permitted. The Company adopted this guidance on April 1, 2022, and will apply the guidance prospectively to business combinations that occur after this date. The Company does not expect the adoption of this guidance to have a material effect on the consolidated financial statements. 3. Revenues The following presents revenues disaggregated by product offering, which aligns with the Company’s performance obligations and the basis for calculating each amount: Year Ended March 31, Management and Advisory Fees, Net 2022 2021 2020 Focused commingled funds $ 148,725 $ 97,223 $ 79,402 SMAs 174,318 135,784 107,286 Advisory and other services 55,523 52,217 47,848 Fund reimbursement revenues 1,691 238 669 Total management and advisory fees, net $ 380,257 $ 285,462 $ 235,205 Year Ended March 31, Incentive Fees 2022 2021 2020 SMAs $ 11,441 $ 5,446 $ 3,410 Focused commingled funds 152 28 — Total incentive fees $ 11,593 $ 5,474 $ 3,410 149 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Year Ended March 31, Carried Interest Allocations 2022 2021 2020 SMAs $ 555,449 $ 359,703 $ 150,848 Focused commingled funds 231,120 137,077 57,148 Total carried interest allocations $ 786,569 $ 496,780 $ 207,996 Year Ended March 31, Legacy Greenspring Carried Interest Allocations 2022 2021 2020 SMAs $ — $ — $ — Focused commingled funds (1) 187,106 — — Total legacy Greenspring carried interest allocations $ 187,106 $ — $ — _______________________________ (1) The year ended March 31, 2022 reflects the net effect of gross realized carried interest allocations of $ 92.2 million, and the reversal of such amounts in unrealized carried interest allocations for the period. The increase in carried interest allocations for the year ended March 31, 2022 as compared to the prior year periods was primarily attributable to net unrealized appreciation in the fair value of certain underlying fund investments. See note 2 for a discussion of the Company’s accounting policy for investments on a three-month lag. The Company derives revenues from clients located in both the United States and other countries. The table below presents the Company’s revenues by geographic location: Year Ended March 31, Revenues (1) 2022 2021 2020 United States $ 428,282 $ 166,719 $ 108,681 Non-U.S. countries 937,243 620,997 337,930 _______________________________ (1) Revenues are attributed to countries based on client location for SMAs and advisory and other services, or location of investment vehicle for focused commingled funds. For the years ended March 31, 2022, 2021 and 2020, no individual client represented 10% or more of the Company’s net management and advisory fees. As of March 31, 2022 and 2021, the Company had $ 19.0 million and $ 13.9 million, respectively, of deferred revenues, which is included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets. During the year ended March 31, 2022, the Company had recognized $ 4.6 million as revenue from amounts included in the deferred revenue balance as of March 31, 2021. 150 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) 4. Variable Interest Entities Consolidated VIEs The Company consolidates certain VIEs for which it is the primary beneficiary. VIEs consist of certain operating entities not wholly-owned by the Company (e.g., Swiss Capital, SRA and SRE) and legacy Greenspring general partner entities. See note 2 for more information on the Company’s accounting policies related to the consolidation of VIEs. The assets of the consolidated VIEs totaled $ 1,435.2 million and $ 65.3 million as of March 31, 2022 and 2021, respectively. The liabilities of the consolidated VIEs totaled $ 1,181.2 million and $ 26.9 million as of March 31, 2022 and 2021, respectively. The assets of the consolidated VIEs may only be used to settle obligations of the same VIE. In addition, there is no recourse to the Company for the consolidated VIEs’ liabilities, except for certain entities in which there could be a clawback of previously distributed carried interest. As of March 31, 2022, no material amounts previously distributed have been accrued for clawback liabilities. Unconsolidated VIEs The Company holds variable interests in the form of direct equity interests in certain VIEs that are not consolidated because the Company is not the primary beneficiary. The Company’s maximum exposure to loss is limited to the potential loss of assets recognized by the Company relating to these unconsolidated entities. The carrying value of the assets and liabilities recognized in the consolidated balance sheets with respect to the Company’s interests in VIEs that were not consolidated is set forth below: As of March 31, 2022 2021 Investments in funds $ 107,045 $ 74,379 Legacy Greenspring investments in funds 194,480 — Due from affiliates, net 18,830 4,218 Less: Amounts attributable to non-controlling interests in subsidiaries 13,832 7,488 Less: Amounts attributable to non-controlling interests in legacy Greenspring entities 194,480 — Maximum exposure to loss $ 112,043 $ 71,109 5. Investments The Company’s investments consist of equity method investments primarily related to investments in the StepStone Funds for which it serves as general partner or managing member but does not have a controlling financial interest. The Company’s equity interest typically does not exceed 1% in each fund. The Company’s share of the underlying net income or loss attributable to its equity interest in the funds is recorded in investment income in the consolidated statements of income. Investment income attributable to investments in certain legacy Greenspring funds for which the Company has no direct economic interests are recorded in legacy Greenspring investment income in the consolidated statements of income. 151 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) The Company’s equity method investments consist of the following: As of March 31, 2022 2021 Investments in funds $ 107,045 $ 74,379 Accrued carried interest allocations 1,480,515 896,523 Legacy Greenspring investments in funds and accrued carried interest allocations (1) 1,334,581 — Total investments $ 2,922,141 $ 970,902 _______________________________ (1) Reflects investments in funds of $ 194.5 million and carried interest allocations of $ 1,140.1 million as of March 31, 2022. The Company recognized equity method income of the following: Year Ended March 31, 2022 2021 2020 Carried interest allocations $ 786,569 $ 496,780 $ 207,996 Investment income 26,160 16,407 6,926 Legacy Greenspring carried interest allocations 187,106 — — Legacy Greenspring investment income 32,586 — — Total equity method income $ 1,032,421 $ 513,187 $ 214,922 The increase in carried interest allocations for the year ended March 31, 2022 as compared to the prior periods was primarily attributable to unrealized appreciation in the fair value of the underlying investments in the Company’s private equity funds. See note 2 for a discussion of the Company’s accounting policy for investments on a three-month lag. As of March 31, 2022 and 2021, the Company’s investments in two SMAs, each individually represented 10% or more of the total accrued carried interest allocations balance, and in the aggregate represented approximately 25 % and 26 %, respectively, of the total accrued carried interest allocations balances as of those dates. As of March 31, 2022, the Company’s investments in three commingled funds individually represented 10% or more of the total legacy Greenspring investments in funds and accrued carried interest allocations balance, and in the aggregate represented approximately 39 % of the total legacy Greenspring investments in funds and accrued carried interest allocations balance as of that date. Of the total accrued carried interest allocations balance as of March 31, 2022 and 2021, respectively, $ 770.0 million and $ 465.6 million were payable to affiliates and is included in accrued carried interest-related compensation in the consolidated balance sheets. Of the total legacy Greenspring investments in funds and accrued carried interest allocations balance as of March 31, 2022, $ 1,140.1 million was payable to employees who are considered affiliates of the Company and is included in legacy Greenspring accrued carried interest-related compensation in the consolidated balance sheets and $ 194.5 million is reflected as non-controlling interests in legacy Greenspring entities in the consolidated balance sheets. The Company evaluates each of its equity method investments to determine if any are considered significant as defined by the SEC. As of March 31, 2022 and 2021 and for the years ended March 31, 2022, 2021 and 2020, no individual equity method investment held by the Company met the significance criteria. As a result, the Company is not required to provide separate financial statements for any of its equity method investments. 152 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Summarized financial information for the Company’s equity method investments reflected below represents the financial position as of March 31, 2022 and 2021, and the results of operations for the years ended March 31, 2022, 2021 and 2020, which are reported on a three-month lag. Assets are primarily comprised of the investments held by the StepStone Funds. As of March 31, 2022 2021 Assets $ 62,297,224 $ 29,955,948 Liabilities 944,519 720,638 Equity $ 61,352,705 $ 29,235,310 Year Ended March 31, 2022 2021 2020 Investment income $ 84,279 $ 46,889 $ 78,319 Expenses ( 382,704 ) ( 224,611 ) ( 167,030 ) Net realized and unrealized gain on investments 16,868,454 6,369,649 2,572,750 Income tax expense ( 10,875 ) ( 5,994 ) ( 5,169 ) Net income $ 16,559,154 $ 6,185,933 $ 2,478,870 6. Fair Value Measurements The Company measures certain liabilities at fair value on a recurring basis. The following tables provide details regarding the classification of these liabilities within the fair value hierarchy as of the dates presented: As of March 31, 2022 Level I Level II Level III Total Liabilities Contingent consideration obligations $ — $ — $ 28,025 $ 28,025 Total liabilities $ — $ — $ 28,025 $ 28,025 As of March 31, 2021 Level I Level II Level III Total Liabilities Contingent consideration obligations $ — $ — $ 1,541 $ 1,541 Total liabilities $ — $ — $ 1,541 $ 1,541 For the liabilities presented in the tables above, there were no changes in fair value hierarchy levels during the years ended March 31, 2022 and 2021. 153 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) The changes in the fair value of Level III financial instruments are set forth below: Year Ended March 31, Contingent Consideration Liabilities 2022 2021 Balance, beginning of year: $ 1,541 $ 1,035 Additions 17,769 — (Gain) loss on change in fair value 9,600 1,608 Settlements ( 885 ) ( 1,102 ) Balance, end of year: $ 28,025 $ 1,541 Changes in unrealized (gains) losses included in earnings related to financial liabilities still held at the reporting date $ 9,600 $ 1,608 In connection with the Greenspring acquisition, the Company recorded a contingent consideration liability of $ 17.8 million during the three months ended September 30, 2021. See note 15 for more information. The fair value of the contingent consideration liabilities are based on a discounted cash flow analysis using a probability-weighted average estimate of certain performance targets, including revenue levels. The assumptions used in the analysis are inherently subjective; therefore, the ultimate amount of the contingent consideration liability may differ materially from the current estimate. The significant unobservable inputs required to value the contingent consideration liabilities primarily relate to the future expected revenues and the discount rates applied to the expected future revenues and payments of obligations, which ranged from 7 % to 10 % as of March 31, 2022. The contingent consideration liabilities are included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets. Changes in the fair value of the liabilities are included in general, administrative and other expenses in the consolidated statements of income. In February 2022, the Company amended the contingent consideration arrangement in respect of the Greenspring acquisition whereby a portion of the contingent consideration liability otherwise payable to the sellers will be used to fund compensation arrangements with certain employees of the Company, which will be payable following the end of the earn-out period. As a result, the contingent consideration liability has been reduced by the fair value of amounts payable to certain employees. 7. Property and Equipment Property and equipment is included in other assets and receivables in the consolidated balance sheets and consists of the following: As of March 31, Property and equipment: 2022 2021 Office furniture $ 6,217 $ 5,941 Computer equipment and software 3,517 3,051 Leasehold improvements 12,306 9,883 Property and equipment, gross 22,040 18,875 Less: Accumulated depreciation ( 9,278 ) ( 8,646 ) Property and equipment, net $ 12,762 $ 10,229 Depreciation expense related to property and equipment totaled $ 2.5 million, $ 2.2 million and $ 2.0 million for the years ended March 31, 2022, 2021 and 2020, respectively, and is included in general, administrative and other expenses in the consolidated statements of income. 154 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) 8. Intangibles and Goodwill Intangible assets consist of management contracts providing economic rights to management and advisory fees and client relationships related to future fundraising, as obtained through the Company’s acquisitions of other businesses. Intangible assets, net consists of the following: As of March 31, 2022 2021 Management contracts $ 352,002 $ 41,058 Client relationships 96,650 — Service agreements 9,537 — Less: Accumulated amortization ( 60,064 ) ( 35,567 ) Intangible assets, net $ 398,125 $ 5,491 Amortization expense related to intangible assets was $ 24.5 million, $ 3.3 million and $ 5.0 million for the years ended March 31, 2022, 2021 and 2020, respectively. These amounts are included in general, administrative and other expenses in the consolidated statements of income. In connection with the Greenspring acquisition, the Company added approximately $ 310.9 million of management contract intangible assets, $ 96.7 million of client relationship intangible assets and $ 9.5 million of service agreement intangible assets. See note 15 for more information. The expected future amortization of finite-lived intangible assets is as follows: Fiscal year ending March 31, 2023 $ 43,481 2024 42,645 2025 41,955 2026 41,764 2027 41,730 Thereafter 186,550 Total $ 398,125 The carrying value of goodwill was $ 580.5 million as of March 31, 2022 and $ 6.8 million as of March 31, 2021. The increase in the carrying value of goodwill is attributable to the Greenspring acquisition, which added approximately $ 573.8 million in goodwill. See note 15 for more information. The Company determined there was no indication of goodwill impairment as of March 31, 2022 and 2021. 155 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) 9. Debt Obligations In September 2021, the Company entered into a credit agreement with various lenders (the “Credit Agreement”) in connection with the Greenspring acquisition. The Credit Agreement was arranged by JPMorgan Chase Bank, N.A., as the administrative agent, and provides for a $ 225.0 million multicurrency revolving credit facility (the “Revolver”) with a five-year maturity. As of March 31, 2022, the Company had $ 62.9 million outstanding on the Revolver, net of debt issuance costs. As of March 31, 2021, the Company had no debt obligations outstanding. The Company’s debt obligations consist of the following: As of March 31, 2022 2021 Revolver $ 65,000 $ — Less: Debt issuance costs ( 2,121 ) — Total debt obligations $ 62,879 $ — Borrowings under the Revolver bear interest at a variable rate per annum. The Company may designate each borrowing as (i) in the case of any borrowing in U.S. dollars, a base rate loan or a LIBOR rate loan, (ii) in the case of any borrowing denominated in Euros, a EURIBOR rate loan, (iii) in the case of any borrowing denominated in British Pounds Sterling, a Sterling Overnight Index Average (“SONIA”) loan, (iv) in the case of any borrowing denominated in Swiss Francs, a Swiss Average Rate Overnight (“SARON”) loan, and (v) in the case of any borrowing denominated in Australian dollars, an AUD rate loan. Borrowings bear interest equal to (i) in the case of base rate loans, 1.00 % plus the greatest of (a) the Prime Rate, (b) the New York Federal Reserve Bank Rate plus 0.50 % and (c) the 1 month LIBOR, multiplied by the Statutory Reserve Rate (as defined in the Credit Agreement), plus 1.00 %, (ii) in the case of a LIBOR rate loan, the LIBOR rate multiplied by the Statutory Reserve Rate plus 2.00 %, (iii) in the case of a EURIBOR rate loan, the EURIBOR rate multiplied by the Statutory Reserve Rate plus 2.00 %, (iv) in the case of a SONIA loan, the Sterling Overnight Index Average plus 2.03 %, (v) in the case of a SARON loan, the Swiss Average Rate Overnight plus 2.00 %, and (vi) in the case of an AUD rate loan, the AUD Screen Rate (as defined in the Credit Agreement) multiplied by the Statutory Reserve Rate plus 2.20 %. The weighted-average 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. Any outstanding principal amounts, together with any accrued interest thereon, shall be due and payable on the maturity date. The maturity date for the Revolver is September 20, 2026. The Revolver bears a fee on undrawn commitments equal to 0.25 % per annum if total utilization of revolving commitments is equal to or greater than 50% and 0.35 % per annum if total utilization of revolving commitments is less than 50%. The carrying value of the Revolver approximates fair value, as the loan is subject to variable interest rates that adjust with changes in market rates and market conditions and the current interest rate approximates that which would be available under similar financial arrangements. 156 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Under the terms of the Credit Agreement, certain of the Company’s assets serve as pledged collateral. In addition, the Credit Agreement contains covenants that, among other things: limit the Company’s ability to incur indebtedness; create, incur or allow liens; transfer or dispose of assets; merge with other companies; make certain investments; pay dividends or make distributions; engage in new or different lines of business; and engage in transactions with affiliates. The Credit Agreement also contains financial covenants requiring the Company 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, the Company was in compliance with the total net leverage ratio and minimum fee-earning assets under management covenants. The Company can use available funding capacity under the Revolver to satisfy letters of credit in amounts up to $ 10.0 million. Amounts used to satisfy the letters of credit reduce the available capacity under the Revolver. As of March 31, 2022, the Company had outstanding letters of credit totaling $ 2.9 million. 10. Equity-Based Compensation 2020 Long-Term Incentive Plan In connection with the IPO, the Company adopted the 2020 Long-Term Incentive Plan (“LTIP”), which allows for the granting of stock options, stock appreciation rights, restricted stock awards, RSUs and performance stock awards to employees, directors and consultants. As of March 31, 2022, there were 12,422,413 shares of Class A common stock available to grant under the LTIP. Restricted Stock Units RSUs represent the right to receive payment on the date of vesting in the form of one share of Class A common stock for each RSU. Holders of unvested RSUs do not have the right to vote with the underlying shares of Class A common stock, but are entitled to accrue dividend equivalents which are generally paid in cash when such RSUs vest. The RSUs granted generally vest over four years in equal annual installments. Upon vesting, the Company will typically withhold or cause the participant to sell the number of shares to satisfy the statutory withholding tax obligation and deliver the net number of resulting shares vested. The change in unvested RSUs is as follows: Number of RSUs Weighted-Average Grant-Date Fair Value Per RSU Balance as of March 31, 2021 2,549,861 $ 18.54 Granted 244,452 $ 35.18 Vested ( 645,197 ) $ 18.86 Forfeited ( 61,792 ) $ 18.23 Balance as of March 31, 2022 2,087,324 $ 20.40 The weighted-average grant-date fair value of RSUs granted during the years ended March 31, 2022 and 2021 was $ 35.18 and $ 18.53 , respectively. No RSUs were granted prior to the IPO. The total fair value as of the respective vesting dates of RSUs vested during the year ended March 31, 2022 was $ 27.5 million. No RSUs vested during the years ended March 31, 2021 or 2020. 157 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Unvested Partnership Units In June 2018, the Company issued an aggregate of 5.2 % of profits interests (the “Class B2 Interests”) in the Company to certain key employees. These Class B2 Interests provide the recipients with an opportunity to participate in the profits of the Company and proceeds of certain capital events. The Class B2 Interests vest over a period of six years from the grant date, subject to an employee’s continuous service with the Company through the applicable vesting date. Under the terms of the Fifth Amended and Restated Limited Partnership Agreement dated March 8, 2018, the vesting of the awards will occur as follows: (i) 0 % during the first three years from the date of issuance, (ii) 30.0 % on the third anniversary of the date of issuance, and (iii) 5.8 % for each fiscal quarter after the third anniversary of the date of issuance (fully vested on the sixth anniversary of the date of issuance, or June 2024). Upon the final vesting date, all of the Class B2 units will automatically convert into Class B units and unitholders will be entitled to purchase from the Company one share of Class B common stock for each Class B unit at its par value. Prior to vesting, holders of Class B2 units do not have the right to receive any distributions from the Partnership, other than tax-related distributions. The Class B2 Interests are classified as equity awards, and the associated equity-based compensation expense is recognized on a straight-line basis over the vesting period, with a corresponding increase to stockholders’ equity or, for the period prior to the IPO, partners’ capital in the Company’s consolidated balance sheets. In August 2019, certain changes were made to the Class B2 Interests to, among other things, eliminate certain thresholds and reduce the percentage interest to an amount implied by the value established in connection with the sale of equity to institutional investors as part of the 2019 Transaction, as further described in note 14. The changes to the Class B2 units were accounted for as a modification of equity awards to employees. The modification did not have a material effect on the consolidated financial statements. As of March 31, 2022, there were 2,566,566 Class B2 units outstanding. During the year ended March 31, 2022, none of the outstanding Class B2 units were forfeited. As of March 31, 2022, 1,347,447 Class B2 units were unvested and 1,219,119 Class B2 units were vested. As of March 31, 2022, $ 41.0 million of unrecognized non-cash compensation expense in respect of RSUs and Class B2 units remained to be recognized over a weighted-average period of approximately 3.5 years. The Company recognized tax benefits related to equity-based awards of $ 7.4 million for the year ended March 31, 2022. No tax benefits were recognized for the years ended March 31, 2021 and 2020. 11. Income Taxes The Company’s income before income tax consisted of the following: Year Ended March 31, 2022 2021 2020 Domestic income before income tax $ 471,247 $ 307,396 $ 130,380 Foreign income before income tax 41,334 30,453 18,360 Total income before income tax $ 512,581 $ 337,849 $ 148,740 158 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) The following table presents the components of the Company’s provision for income taxes: Year Ended March 31, 2022 2021 2020 Current: Federal $ 13,340 $ 2,929 $ — State and local 2,714 1,141 1,085 Foreign 6,383 3,381 3,041 Total current income tax expense 22,437 7,451 4,126 Deferred: Federal 4,897 14,752 — State and local 966 1,074 — Foreign — ( 21 ) ( 171 ) Total deferred income tax expense (benefit) 5,863 15,805 ( 171 ) Total income tax expense $ 28,300 $ 23,256 $ 3,955 A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate is as follows: Year Ended March 31, 2022 2021 2020 Federal tax at statutory rate 21.0 % 21.0 % 21.0 % State and local income tax (net of federal tax benefit) 0.6 0.6 0.7 Income passed through to limited partners ( 11.9 ) ( 15.7 ) ( 21.0 ) Foreign income tax 1.2 1.0 1.9 Valuation allowance ( 5.3 ) 0.0 0.0 Other ( 0.1 ) 0.0 0.0 Effective tax rate 5.5 % 6.9 % 2.6 % Prior to the Reorganization and IPO, the Company operated as a partnership for U.S. federal income tax purposes and therefore was not subject to U.S. federal and state income taxes. Subsequent to the Reorganization and IPO, all income attributable to SSG is subject to U.S. corporate income taxes. The Company’s effective tax rate is dependent on many factors, including the estimated amount of income subject to tax. Consequently, the effective tax rate can vary from period to period. The Company’s overall effective tax rate in each of the periods above is less than the statutory rate primarily because (a) the Company was not subject to U.S. federal and state income taxes prior to the Reorganization and IPO and (b) a portion of income is allocated to non-controlling interests, as the tax liability on such income is borne by the holders of such non-controlling interests. The Company has elected to account for global intangible low-taxed income (“GILTI”) earned by foreign subsidiaries in the period the tax is incurred. 159 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) The following table presents the components of the Company’s deferred income tax assets and liabilities: As of March 31, 2022 2021 Deferred tax assets: Investment in the Partnership $ 39,720 $ 118,165 Other 1,568 1,811 Total deferred tax assets before valuation allowance 41,288 119,976 Valuation allowance ( 13,422 ) ( 30,537 ) Total net deferred tax assets 27,866 89,439 Deferred tax liabilities: Total deferred tax liabilities 1,529 — Net deferred tax assets $ 26,337 $ 89,439 In connection with the exchanges of Class B units and Class C units of the Partnership for Class A common stock by certain limited partners of the Partnership during fiscal 2022 which increased the Company’s ownership in the Partnership, the Company recorded an overall increase to deferred tax assets as of March 31, 2022. As of September 30, 2021, primarily due to the Greenspring acquisition, the Company recorded a decrease to deferred tax assets of $ 137.4 million, and a net decrease in the valuation allowance of $ 32.4 million, of which $ 5.0 million was recognized through equity and $ 27.4 million was recognized as an income tax benefit. Additionally, in connection with the exchange transactions, the Company recorded a corresponding Tax Receivable Agreements liability of $ 93.0 million, representing 85% of the incremental net cash tax savings for the Company due to the exchanging limited partners. As of March 31, 2022, the Company’s total Tax Receivable Agreements liability was $ 197.2 million. See notes 13 and 14 for more information. The Company evaluates the realizability of its deferred tax assets on a quarterly basis and adjusts the valuation allowance when it is more-likely-than-not that all or a portion of the deferred tax assets may not be realized. The total ending valuation allowance for the year ended March 31, 2022 was $ 13.4 million. Apart from the valuation allowance, the Company believes that the remaining deferred tax assets will be realized in full. A summary of the change in valuation allowance by year is as follows: Valuation Allowance Balance at March 31, 2020 $ — Equity increase 30,537 Balance at March 31, 2021 30,537 Income tax decrease ( 27,413 ) Equity decrease ( 5,006 ) Equity increase 15,304 Balance at March 31, 2022 $ 13,422 As of March 31, 2022, the Company has no t recorded any unrecognized tax benefits and does no t expect there to be any material changes to uncertain tax positions within the next 12 months. 160 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) The Company files income tax returns as required by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company may be subject to examination by U.S. federal and certain state and local tax authorities. Management has analyzed the Company’s tax positions taken with respect to all applicable income tax issues, for all open tax years, and for all jurisdictions in which the Company is required to file tax returns and has concluded that no provision for income taxes related to uncertain tax positions is required in the Company’s consolidated financial statements for the years ended March 31, 2022, 2021 and 2020. The Company files U.S. federal, state, local and foreign tax returns on a calendar-year basis. With limited exception, returns filed prior to 2017 are no longer subject to examination by the applicable taxing authorities. There are currently no material examinations being conducted of the Company by tax authorities. 12. Earnings Per Share Basic and diluted earnings per share of Class A common stock are presented for the year ended March 31, 2022 and from September 16, 2020 through March 31, 2021, the period following the Reorganization and IPO. There were no shares of Class A common stock outstanding prior to September 16, 2020, therefore no earnings per share information has been presented for any period prior to that date. The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock: Year Ended March 31, 2022 Period from IPO date to March 31, 2021 (in thousands, except share and per share amounts) Numerator: Net income attributable to StepStone Group Inc. – Basic $ 193,885 $ 62,634 Incremental income from assumed vesting of RSUs 4,043 1,854 Incremental income from assumed vesting and exchange of Class B2 units 7,689 3,923 Net income attributable to StepStone Group Inc. – Diluted $ 205,617 $ 68,411 Denominator: Weighted-average shares of Class A common stock outstanding – Basic 49,833,760 29,657,805 Assumed vesting of RSUs 1,289,809 1,151,579 Assumed vesting and exchange of Class B2 units 2,476,681 2,465,420 Weighted-average shares of Class A common stock outstanding – Diluted 53,600,250 33,274,804 Earnings per share of Class A common stock Basic $ 3.89 $ 2.11 Diluted $ 3.84 $ 2.06 Diluted earnings per share of Class A common stock is computed by dividing net income (loss) attributable to SSG, giving consideration to the reallocation of net income between holders of Class A common stock and non-controlling interests, by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities, if any. 161 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Shares of the Company’s Class B common stock do not share in the earnings or losses attributable to SSG and therefore are not participating securities. As a result, a separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been included. The calculation of diluted earnings per share excludes 47,149,673 Class B units and 2,928,824 Class C units of the Partnership outstanding as of March 31, 2022, and 56,378,831 shares of Class B units of the Partnership outstanding as of March 31, 2021, which are exchangeable into Class A common stock under the if-converted method, as the inclusion of such shares would be anti-dilutive. 13. Related Party Transactions The Company considers its senior executives, employees and equity method investments to be related parties. A substantial portion of the Company’s management and advisory fees and carried interest allocations is earned from various StepStone Funds that are considered equity method investments. The Company earned net management and advisory fees from the StepStone Funds of $ 241.0 million, $ 171.0 million and $ 134.6 million for the years ended March 31, 2022, 2021 and 2020, respectively. Carried intere st allocation revenues earned from the StepStone Funds totaled $ 786.6 million, $ 496.8 million and $ 208.0 million for the years ended March 31, 2022, 2021 and 2020, respectively. Legacy Greenspring carried intere st allocation revenues earned from certain legacy Greenspring funds for which the Company has no direct economic interests totaled $ 187.1 million for the year ended March 31, 2022. Due from affiliates in the consolidated balance sheets consists primarily of fees and accounts receivable from the StepStone Funds, advances made on behalf of the StepStone Funds for the payment of certain organization and operating costs and expenses for which the Company is subsequently reimbursed, and amounts due from employees, as set forth below. As of March 31, 2022 2021 Amounts receivable from StepStone Funds $ 19,027 $ 6,958 Amounts receivable from employees 342 516 Total due from affiliates $ 19,369 $ 7,474 Due to affiliates in the consolidated balance sheets consists primarily of amounts payable to certain non-controlling interest holders in connection with the Tax Receivable Agreements, amounts payable to StepStone Funds and distributions payable to certain employee equity holders of consolidated subsidiaries, as set forth below. As of March 31, 2022 2021 Amounts payable to non-controlling interest holders in connection with Tax Receivable Agreements $ 197,204 $ 107,216 Amounts payable to StepStone Funds 198 2,740 Distributions payable to certain employee equity holders of consolidated subsidiaries 1,953 3,566 Total due to affiliates $ 199,355 $ 113,522 The Company made payments of $ 0.8 million during the year ended March 31, 2022 under the Tax Receivable Agreements. No payments were made under the Tax Receivable Agreements during the year ended March 31, 2021. 162 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) 14. Stockholders’ Equity The Company has two classes of common stock outstanding, Class A common stock and Class B common stock. Holders of Class A common stock and Class B common stock generally vote together as a single class on all matters presented to the Company’s stockholders for their vote or approval. Holders of Class A common stock are entitled to receive dividends when and if declared by the board of directors. Holders of the Class B common stock are not entitled to dividends in respect of their shares of Class B common stock. In connection with the Greenspring acquisition, the limited partnership agreement of the Partnership was amended to create new Class C limited partnership interests and to admit the new limited partners that received Class C units as consideration for the Greenspring acquisition. The Class C limited partnership interests of the Partnership have substantially the same rights and obligations as are applicable to the existing holders of Class B units of the Partnership. The Company has no ownership interest in the Class C units, which are held by certain employees of the Company. The Company has also entered into an agreement with the Class C limited partners of the Partnership to allow for the exchange of Class C units to shares of Class A common stock of the Company on a one-for-one basis, subject to certain restrictions. The following table shows a rollforward of the Company’s shares of common stock outstanding since March 31, 2021: Class A Common Stock Class B Common Stock March 31, 2021 38,437,500 56,378,831 Class A common stock issued for Greenspring acquisition 12,686,756 — Class A common stock issued in exchange for Class B Partnership units 9,229,158 ( 9,229,158 ) Class A common stock issued in exchange for Class C Partnership units 142,695 — Class A common stock issued for vesting of RSUs 645,197 — March 31, 2022 61,141,306 47,149,673 The Company has 25,000,000 authorized shares of preferred stock, par value of $ 0.001 per share, and as of March 31, 2022, no shares of preferred stock were issued or outstanding. The Company records a reallocation adjustment between SSG stockholders’ equity, non-controlling interests in the Partnership and non-controlling interests in subsidiaries to reflect the impact of changes in economic ownership percentages during the period and adjust previously recorded equity transactions to the economic ownership percentage as of the end of each reporting period. Equity Transactions Subsequent to the IPO In March 2022, the Company issued 350,000 shares of Class A common stock to a limited partner of the Partnership in exchange for 350,000 Class B units in accordance with the elective exchange notices submitted pursuant to an agreement with the Class B limited partners (the “Class B Exchange Agreement”) to allow for exchange of Class B units of the Partnership to shares of Class A common stock of the Company on a one-for-one basis, subject to certain restrictions. 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 the Company. 163 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) In February 2022, the Partnership completed a transaction to repurchase partnership interests in SRA from a former partner for approximately $ 0.3 million, and subsequently sold an equal number of partnership interests to certain employees of SRA for approximately $ 0.3 million, resulting in no net proceeds to the Partnership. In December 2021, the Company 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 the elective exchange notices submitted pursuant to the Class B Exchange Agreement. 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 the Company. In November 2021, the Company conducted an underwritten public offering of 4,500,000 shares of Class A common stock sold by selling stockholders at a public offering price of $ 51.83 per share. In connection with the offering, the Company issued 3,958,204 shares of Class A common stock to certain selling stockholders in exchange for 3,958,204 Class B units. 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 the Company. The Company also issued 142,695 shares of Class A common stock to certain selling stockholders in exchange for 142,695 Class C units and a corresponding number of Class A units of the Partnership were issued to the Company. The Company did not receive any proceeds from the sale of shares by the selling stockholders. In September 2021, the Company 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 the elective exchange notices submitted pursuant to the Class B Exchange Agreement. 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 the Company. Earlier in September 2021, the Company issued 12,686,756 shares of Class A common stock and 3,071,519 Class C units of the Partnership as partial consideration for the Greenspring acquisition. See note 15 for more information. In June 2021, the Company issued 1,898,438 shares of Class A common stock to certain limited partners of the Partnership in exchange for 1,898,438 Class B units in accordance with elective exchange notices submitted pursuant to the Class B Exchange Agreement. 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 the Company. In March 2021, the Company conducted an underwritten public offering of 9,200,000 shares of Class A common stock, including 1,200,000 shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, sold by selling stockholders at a public offering price of $ 29.50 per share. In connection with the offering, the Company issued 9,200,000 shares of Class A common stock to the selling stockholders in exchange for 9,200,000 Class B units. 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 the Company. The Company did not receive any proceeds from the sale of shares by the selling stockholders. Equity Transactions in Connection with and Prior to the Reorganization and IPO In connection with the consummation of the IPO, the Partnership issued new partnership interests to certain StepStone professionals at SRA in exchange for their partnership interests in SRA, which increased the Partnership’s interest in SRA to approximately 49 % and decreased the StepStone professionals’ interest in SRA to approximately 51 %. 164 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) In June 2020, SRA completed a transaction to repurchase partnership interests in SRA from a former partner for approximately $ 3.3 million, and subsequently sold an equal number of partnership interests to certain employees of SRA for approximately $ 3.3 million, resulting in no net proceeds to SRA. In August 2019, the Company completed a series of transactions resulting in the unitization of its equity and the combination of certain classes of the Company’s equity to facilitate the sale of newly issued equity interests in the Company to certain institutional investors (the “2019 Transaction”). The Company received approximately $ 110.8 million in net proceeds from the sale of equity to institutional investors and used all of the proceeds to repurchase an equal number of equity interests from certain existing partners of the Company. In addition, the Company repurchased additional Class D partnership interests from a former employee for $ 2.3 million, which will be paid to the former employee at such time carried interest allocations are realized by the Company. In connection with the 2019 Transaction, the previously existing Class A1, Class B, Class C and Class D partnership interests were canceled and combined with and into the existing Class A partnership interests of the Company as a single class with equal value (without substantive changes to economic rights associated therewith), with each partner participating ratably in all distributions, including carried interest. Prior to the 2019 Transaction, the Company had several classes of partnership interests outstanding: Class A, Class A1, Class A2, Class B, Class C and Class D. Holders of Class A1, Class B and Class C partnership interests generally had similar rights, including the sharing of economics, with certain exceptions. As part of the Reorganization, the previously existing Class A partnership interests of the Company were reclassified as Class B units and previously granted awards of Class A2 unvested partnership units were reclassified as Class B2 units. Dividends and Distributions Dividends and distributions are reflected in the consolidated statements of stockholders’ equity when declared by the board of directors. Dividends are made to Class A common stockholders and distributions are made to limited partners of the Partnership and holders of non-controlling interests in subsidiaries. 165 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) 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 _______________________________ (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. 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. 15. Business Combinations Greenspring Acquisition On September 20, 2021, the Company completed the acquisition of 100 % of the equity of Greenspring Associates, Inc. and certain of its affiliates (collectively, “Greenspring”) in exchange for (i) cash consideration of approximately $ 185 million, net of an agreed upon adjustment based upon Greenspring’s net working capital balance at the closing date, (ii) 12,686,756 shares of Class A common stock and (iii) 3,071,519 newly issued Class C units of the Partnership (the “Greenspring acquisition”). The transaction agreement also included an earn-out of payment up to $ 75 million that is payable in 2025 subject to the achievement of certain management fee revenue targets for calendar year 2024. The results of Greenspring’s operations have been included in the consolidated financial statements effective September 20, 2021. The acquisition of Greenspring is expected to expand the Company’s continued growth of its private markets capabilities across asset classes, geographies and sectors. 166 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) The aggregate purchase price for the acquisition of Greenspring and the estimated fair values of the assets acquired and liabilities assumed at the acquisition date were as follows: Acquisition date fair value of consideration transferred: Cash consideration $ 186,577 Class A common stock 558,598 Class C units of the Partnership 135,239 Contingent consideration 17,769 Total purchase price $ 898,183 Estimated fair value of assets acquired and liabilities assumed: Cash and short-term receivables $ 5,725 Legacy Greenspring investments in funds and accrued carried interest allocations (1) 1,203,299 Lease right-of-use assets, net 2,585 Other assets and receivables 2,146 Finite-lived intangible assets—contractual rights: management contracts 310,944 Finite-lived intangible assets—client relationships 96,650 Finite-lived intangible assets—contractual rights: service agreements 9,537 Goodwill 573,750 Deferred income taxes ( 95,884 ) Accrued expenses and other liabilities ( 4,685 ) Legacy Greenspring accrued carried interest-related compensation (1) ( 1,045,157 ) Lease liabilities ( 2,585 ) Non-controlling interests in legacy Greenspring entities (1) ( 158,142 ) Total $ 898,183 _______________________________ (1) Represents investments in funds and carried interest allocations attributable to consolidated VIEs for which the Company did not acquire any direct economic interests. Such amounts are attributable to employees and therefore have been reflected as non-controlling interests in legacy Greenspring entities and legacy Greenspring accrued carried interest-related compensation, respectively. For the year ended March 31, 2022, the Company incurred $ 13.8 million of acquisition-related costs that were expensed as incurred and included in general, administrative and other expenses in the consolidated statements of income. The Company allocated $ 320.5 million and $ 96.7 million of the purchase price to the fair value of contractual rights and client relationships, respectively, which will be amortized over a weighted-average amortization period of 10.0 years. The $ 573.8 million of goodwill primarily related to Greenspring’s assembled workforce and business synergies expected to be realized from the transaction. This goodwill is not expected to be deductible for tax purposes. The amount of revenues and net income of Greenspring (including amounts attributable to legacy Greenspring entities) since the acquisition date were approximately $ 230 million and $ 54 million, respectively. 167 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) The following supplemental unaudited pro forma information assumes the Greenspring acquisition, as well as the Reorganization and IPO, had been consummated as of April 1, 2020: Year Ended March 31, 2022 2021 Revenues $ 1,866,986 $ 1,362,067 Net income attributable to StepStone Group Inc. 168,653 80,743 The Company’s fiscal year ends on March 31, and prior to the transaction, Greenspring’s fiscal year ended on December 31. To comply with SEC rules and regulations for companies with different fiscal year ends, the pro forma combined financial information has been prepared utilizing periods that differ by less than 93 days. The unaudited pro forma information for the year ended March 31, 2022 combines the Company’s historical audited consolidated statement of income for the year ended March 31, 2022 and Greenspring’s historical unaudited combined statement of income for the 12 months ended March 31, 2022. The unaudited pro forma information for the year ended March 31, 2021 combines the Company’s historical audited consolidated statement of income for the year ended March 31, 2021 and Greenspring’s historical audited combined statement of income for the fiscal year ended December 31, 2020. The supplemental unaudited pro forma information is based on estimates and assumptions believed reasonable and are not necessarily indicative of the Company’s consolidated results in future periods or the results that actually would have been realized had the Greenspring acquisition been a combined entity during the periods presented. The pro forma amounts have been calculated after reflecting the following adjustments that were directly attributable to the Reorganization, IPO, Greenspring acquisition and the related debt issuance used to fund a portion of the cash consideration, as if the transactions were consummated on April 1, 2020: Reorganization and IPO • adjustments to include compensation expense associated with the 2.5 million RSUs issued in connection with the IPO; • adjustments on interest expense to reflect the repayment of outstanding debt using a portion of the IPO proceeds; • adjustments to include federal and state income taxes for the Company’s share of taxable income generated by the Partnership; and • adjustments to reflect the pro-rata economic ownership attributable to the Company. Debt Financing • adjustments to include interest expense related to the Revolver used to fund a portion of the cash consideration. Greenspring Acquisition • adjustments to include the impact of additional amortization of acquired intangible assets that would have been charged; • adjustments to include the issuance of Class A common stock of the Company and Class C units of the Partnership as consideration for the transaction; 168 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) • adjustments to reflect the pro-rata economic ownership attributable to the Company; • adjustments to reflect the tax effects of the Greenspring acquisition and including Greenspring in the Company’s results; and • adjustments to include acquisition-related transaction costs in earnings for the year ended March 31, 2021. 16. Commitments and Contingencies Litigation In the ordinary course of business, and from time to time, the Company may be subject to various legal, regulatory and/or administrative proceedings. The Company accrues a liability for legal proceedings only when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. Although there can be no assurance of the outcome of such proceedings, based on information known by management, the Company does not expect a potential liability related to any current legal proceedings or claims that would individually or in the aggregate materially affect its consolidated financial statements as of March 31, 2022. Lease Commitments The Company leases offices in 23 cities in the United States, Canada, South America, Europe, Asia and Australia, and certain equipment subject to operating lease agreements expiring through 2031, some of which may include options to extend or terminate the lease. As of March 31, 2022, there were no finance leases outstanding. In June 2021, the Company executed an agreement to lease additional office space for its La Jolla office. The Company gained access to the additional space in April 2022 following the completion of the build out by the lessor. The Company established a ROU asset and lease liability for the new lease upon lease commencement in April 2022, with the total future lease payments expected to be approximately $ 3.3 million over approximately 9 years. In February 2022, the Company executed an agreement to lease additional office space for its U.K. office. The lessor is currently undergoing the build out for the additional office space and the Company expects to gain access to the additional space in June 2022. At that time, the Company will establish a ROU asset and lease liability for the new lease. Upon lease commencement, total future lease payments are expected to be approximately $ 21.7 million over approximately 10 years. The components of lease expense included in general, administrative and other expenses in the consolidated statements of income were as follows: Year Ended March 31, 2022 Operating lease cost (1) $ 11,098 Variable lease cost 957 Sublease income ( 1,679 ) Total lease cost $ 10,376 _______________________________ (1) Operating lease cost includes an immaterial amount of short-term leases. 169 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Occupancy expense related to office facility operating leases totaled $ 9.3 million and $ 8.7 million for the years ended March 31, 2021 and 2020, respectively. Supplemental cash flow information related to leases was as follows: Year Ended March 31, 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used for operating leases $ 10,319 Weighted-average remaining lease term for operating leases (in years) 7.7 Weighted-average discount rate for operating leases 2.7 % As of March 31, 2022, maturities of operating lease liabilities were as follows: FY2023 $ 10,861 FY2024 11,582 FY2025 10,545 FY2026 10,227 FY2027 9,252 Thereafter 29,602 Total lease liabilities 82,069 Less: Imputed interest ( 11,104 ) Total operating lease liabilities $ 70,965 Unfunded Capital Commitments As of March 31, 2022 and 2021, the Company, generally in its capacity as general partner or managing member of the StepStone Funds, had unfunded commitments totaling $ 68.2 million and $ 60.5 million, respectively. The $ 68.2 million of unfunded commitments as of March 31, 2022 excludes $ 40.5 million related to commitments held by the legacy Greenspring general partner entities in legacy Greenspring funds for which the Company does not hold any direct economic interests. Carried Interest Allocations Carried interest allocations are subject to reversal in the event of future losses, to the extent of the cumulative revenues recognized by the Company in income to date. Additionally, if the Company has received net profits over the life of the fund in excess of its allocable share under the applicable partnership agreement, the Company may be obligated to repay previously distributed carried interest that exceeds the amounts to which the Company is ultimately entitled. In these situations, a liability is accrued for the potential clawback obligation if amounts previously distributed to the Company would require repayment to a fund if such fund were to be liquidated based on the current fair value of their underlying investments as of the reporting date. Actual repayment obligations generally do not become realized until the end of a fund’s life. As of March 31, 2022 and 2021, no material amounts for potential clawback obligations had been accrued. This contingent obligation is normally reduced by income taxes that the Company has paid related to the carried interest allocations. As of March 31, 2022, the maximum amount of carried interest allocations (excluding legacy Greenspring carried interest allocations) attributable to the Company 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 the Company views as remote. 170 Table of Cont ents StepStone Group Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts and where noted) Indemnification Arrangements In the normal course of business and consistent with standard business practices, the Company has provided general indemnifications to its limited partners, officers and directors when they act in good faith in the performance of their duties for the Company. The terms of these indemnities vary from contract to contract. The Company’s maximum exposure under these arrangements cannot be determined as these indemnities relate to future claims that may be made against the Company or related parties, but which have not yet occurred. No liability related to these indemnities has been recorded in the consolidated balance sheets as of March 31, 2022 and 2021. Based on past experience, management believes that the risk of loss related to these indemnities is remote. 17. Employee Benefits The Company provides defined contribution plans covering employees subject to minimum age and service guidelines. Eligible employees may contribute a percentage of their annual compensation subject to statutory guidelines. The Company makes non-discretionary contributions to the plans, which amounted to $ 4.3 million, $ 3.2 million and $ 2.7 million for the years ended March 31, 2022, 2021 and 2020, respectively, and are included in cash-based compensation in the consolidated statements of income. One of the Company’s subsidiaries with non-U.S. operations maintains a defined benefit pension plan (the “Plan”). The Plan covers certain non-U.S. employees and provides benefits to such employees upon retirement, disability and/or death. As of March 31, 2022 and 2021, the Plan’s assets totaled $ 23.8 million and $ 21.7 million, respectively. As of March 31, 2022 and 2021, the underfunded pension obligation, based on the latest actuarial determination, was $ 2.2 million and $ 3.8 million, respectively, and is included in accrued compensation and benefits in the consolidated balance sheets. Net period benefit cost recognized was $ 1.1 million, $ 0.9 million and $ 0.4 million for the years ended March 31, 2022, 2021 and 2020, respectively, which is included in cash-based compensation in the consolidated statements of income. 18. Subsequent Events On May 26, 2022, the Company announced a quarterly cash dividend of $ 0.20 per share of Class A common stock, payable on June 30, 2022 to holders of record as of the close of business on June 15, 2022. 171 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.