What changed in this filing

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Item 1A. Risk Factors

2024-05-24 compared with 2023-05-26 · 112 added, 64 removed, 735 unchanged (19% of the section changed)

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The availability of investment opportunities will be subject to market conditions and other factors outside of our control and the control of the fund managers with which we invest.

Markets in 2022 and 2023 have experienced meaningful headwinds, including falling equity values and increasing borrowing costs.

The historical investment returns of the StepStone Funds and advisory accounts have benefited from investment opportunities and general market conditions, including favorable borrowing conditions in the debt markets during such historical periods, and we cannot assure you that the StepStone Funds, advisory accounts or the underlying funds in which we invest will be able to avail themselves of comparable opportunities and conditions, particularly in light of recent rising interest rates and other market conditions.

Markets in the last two years experienced meaningful headwinds, including increasing borrowing costs.

Further, we cannot assure you that the private markets funds we select will be able to identify sufficient attractive investment opportunities to meet their investment objectives.

If the investments we make on behalf of the StepStone Funds or recommend to clients perform poorly, we may suffer a decline in our revenues and earnings, and our ability to raise capital for future StepStone Funds may be materially and adversely affected.

Our revenue from our investment management solutions is derived from fees earned for our management of the StepStone Funds and advisory accounts, performance fees, including incentive fees and carried interest with respect to certain of the StepStone Funds, administrative services, and monitoring and reporting fees.

Our revenue from our investment management solutions is derived from fees earned for our management of the StepStone Funds and advisory accounts, performance fees, including incentive fees and carried interest allocations with respect to certain of the StepStone Funds, and monitoring and reporting fees.

In the event that the StepStone Funds or individual investments perform poorly, our revenues and earnings derived from performance fees will decline and make it more difficult for us to raise capital for new focused commingled funds or gain new SMA clients in the future.

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We cannot assure you that required consents will be obtained if a change of control occurs.

In addition, with respect to our funds that are subject to the Investment Company Act of 1940, as amended (the “Investment Company Act”), each fund’s investment management agreement must be approved annually by (a) such fund’s board of directors or by a vote of the majority of such fund’s equity holders and (b) the independent members of such fund’s board of directors and, in certain cases, its equity holders, as required by law.

In addition, with respect to our funds that are subject to the Investment Company Act of 1940, as amended (the “Investment Company Act”), each fund’s investment management agreement must be approved annually by (a) such fund’s board of directors and by a vote of the majority of such fund’s equity holders or (b) the independent members of such fund’s board of directors, as required by law.

Termination of these agreements would cause us to lose the management fees and performance fees we earn from such funds, which could have a material adverse effect on our results of operations.

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In addition, because our senior management and other professionals generally hold their economic interests through pass-through entities like the Partnership or other affiliated entities, which are not subject to U.S.

federal and state entity-level income taxes, and our Class A common stockholders will hold their interests through StepStone Group Inc., which is subject to entity-level taxation as a corporation in the United States, conflicts relating to the selection and structuring of investments or other matters may arise between the Class B unitholders (who are also Class B stockholders of StepStone Group Inc.) and Class C unitholders of the Partnership, on the one hand, and the Class A stockholders of StepStone Group Inc., on the other hand.

Recent and prospective increases in interest rates or decreases in the availability of credit may adversely affect the ability of the StepStone Funds to achieve attractive rates of return, particularly because certain funds and portfolio companies depend on leverage for a return on investment.

federal and state entity-level income taxes, and our Class A common stockholders will hold their interests through StepStone Group Inc., which is subject to entity-level taxation as a corporation in the United States, conflicts relating to the selection and structuring of investments or other matters may arise between the Class B unitholders (who are also Class B stockholders of StepStone Group Inc.), Class C unitholders and Class D unitholders of the Partnership, on the one hand, and the Class A stockholders of StepStone Group Inc., on the other hand.

Recent and continuing higher interest rates or prospective decreases in the availability of credit may adversely affect the ability of the StepStone Funds to achieve attractive rates of return, particularly because certain funds and portfolio companies depend on leverage for a return on investment.

While interest rates have historically been low in recent years, various economic factors have recently resulted in a significant increase in interest rates and the rate of inflation, and may also reduce credit availability, all of which may adversely affect the ability of the StepStone Funds to achieve attractive rates of return and adversely affect the value of our carried interest.

For instance, in fiscal 2023, we recorded a $253.3 million loss on unrealized carried interest allocations with respect to our historic operations, as well as a $452.2 million loss on Legacy Greenspring carried interest allocations.

For instance, in fiscal 2023, we recorded a $122.3 million loss on unrealized carried interest allocations (net of the reversal of realized carried interest allocations) with respect to our historic operations, as well as a $452.2 million loss on Legacy Greenspring carried interest allocations.

The StepStone Funds, as well as the companies in which they invest, raise capital in the structured private debt, leveraged loan and high yield bond markets.

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Clients in the StepStone Funds with commitment-based structures may not satisfy their contractual obligation to fund capital calls when requested, which could adversely affect a fund’s operations and performance.

Clients make capital commitments to the StepStone Funds, which we are entitled to call at any time during prescribed periods that can extend for several years into the future.

Clients make capital commitments to StepStone Funds with commitment-based structures, and we are entitled to call capital at any time during prescribed periods that can extend for several years into the future.

We depend on clients fulfilling their commitments when we call capital from them in order for those funds to consummate investments and otherwise pay their obligations when due.

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If these portfolio companies default on their indebtedness, or otherwise seek or are forced to restructure their obligations or declare bankruptcy, we could lose some or all of our investment and suffer reputational harm.

See “—Recent and prospective increases in interest rates or decreases in the availability of credit may adversely affect the ability of the StepStone Funds to achieve attractive rates of return, particularly because certain funds and portfolio companies depend on leverage for a return on investment.”

See “—Recent and continuing higher interest rates or prospective decreases in the availability of credit may adversely affect the ability of the StepStone Funds to achieve attractive rates of return, particularly because certain funds and portfolio companies depend on leverage for a return on investment.”

The portfolio companies in which private markets funds have invested or may invest will sometimes involve a high degree of business and financial risk.

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broker-dealers.

Customers of regulated financial institutions with amounts in excess of the relevant insurance limits are unsecured creditors with respect to cash and cash equivalents held with such institutions in excess of those relevant insurance limits, and therefore such excess amounts are subject to risk of loss;

although uninsured depositors of a failed bank are given priority over general unsecured creditors of the same failed bank.

Although governmental intervention has resulted in additional protections for uninsured depositors of failed banks, or facilitated acquisitions, there can be no assurance that governmental intervention will be successful or avoid the risk of loss.

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Failures or interruptions of these services may disrupt our business, damage our reputation, limit our growth and adversely affect our business and results of operations.

We and our clients rely heavily on our proprietary data and technology platforms, including SPI and Omni, and associated tools, which form a valuable part of the services we offer to our clients.

We and our clients rely heavily on our proprietary data and technology platforms, including SPI Research and SPI Reporting, and associated tools, which form a valuable part of the services we offer to our clients.

We also rely heavily on other financial, accounting, compliance, monitoring and reporting data processing systems.

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A compromise or corruption of our systems or that of our vendors containing confidential information could damage our business relationships and adversely affect our business, financial condition and results of operations.

We collect, process and store rapidly increasing volumes of highly sensitive data, including our proprietary business information and intellectual property, and personally identifiable information of our employees, our clients and others, in our data centers and on our networks, and with our vendors and service providers.

Omni includes funds, direct investments and co-investments that we monitor and report on for the StepStone Funds and advisory accounts.

SPI Reporting includes funds, direct investments and co-investments that we monitor and report on for the StepStone Funds and advisory accounts.

The secure processing, maintenance and transmission of this information are critical to our operations.

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Such events could damage our business relationships and adversely affect our business, financial condition and results of operations.

Cybersecurity risks and cyber incidents could adversely affect our business by causing a disruption to our operations, which could adversely affect our financial condition and results of operations.

The frequency and sophistication of the cyber and security threats we face continue to increase.

As a result, we face a heightened risk of a security breach or disruption with respect to sensitive information resulting from an attack by computer hackers, foreign governments or cyber terrorists.

Cybersecurity risks and cybersecurity incidents could adversely affect our business by causing a disruption to our operations, which could adversely affect our financial condition and results of operations.

The frequency and sophistication of the cybersecurity threats and incidents we face continue to increase.

As a result, we face a heightened risk of a cybersecurity incident or disruption with respect to sensitive information resulting from an attack by computer hackers, foreign governments or cyber terrorists.

Our reputation and our ability to operate and expand our business depend on computer hardware and software systems, including our proprietary data and technology platforms and other data processing systems, which can be vulnerable to security breaches or other cyber incidents.

Our funds’ portfolio companies rely on similar systems and face similar risks, and such funds may invest in strategic assets having a national or regional profile or in infrastructure assets that face a greater risk of attack.

Cyber or security incidents may be an intentional attack, such as a hacker attack, ransomware, virus or worm, or an unintentional event and could involve bad actors gaining unauthorized access to our information systems for purposes of misappropriating assets, disclosing or modifying sensitive or confidential information, corrupting data or causing operational disruption.

Cybersecurity incidents may be an intentional attack, such as a hacker attack, ransomware, virus or worm, or an unintentional event and could involve bad actors gaining unauthorized access to our information systems for purposes of misappropriating assets, disclosing or modifying sensitive or confidential information, corrupting data or causing operational disruption.

Cyber-criminals can attempt to redirect payments required to be paid at the closings of our investments to unauthorized accounts, which we or the services providers we retain, such as paying agents and escrow agents, may not be able to detect or protect against.

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The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by others, including by our service providers.

We have implemented processes, procedures and internal controls designed to mitigate cybersecurity risks and cyber intrusions.

However, these measures, as well as our increased awareness of the nature and extent of a risk of a cyber-incident, do not guarantee that a cyber-incident will not occur or that our financial results or operations will not be adversely affected by such an incident.

We have implemented processes, procedures and internal controls designed to mitigate cybersecurity risks and cybersecurity incidents.

However, these measures, as well as our increased awareness of the nature and extent of a risk of a cybersecurity incident, do not guarantee that a cyber-incident will not occur or that our financial results or operations will not be adversely affected by such an incident.

Cyber-incident techniques change frequently, may not immediately be recognized and can originate from a wide variety of sources.

We expect to be required to devote increasing levels of funding and resources to comply with evolving cybersecurity regulations, including those expected to be promulgated by the SEC with respect to public companies and investment advisers, and to continually monitor and enhance our information security procedures and controls.

We expect to be required to devote increasing levels of funding and resources to comply with evolving cybersecurity regulations, including the new SEC rules applicable to public companies as well as those expected to be promulgated by the SEC with respect to investment advisers, and to continue to monitor and enhance our information security procedures and controls.

We maintain insurance intended to cover certain cybersecurity events, but such insurance may not cover all risks and losses that we experience.

Finally, we rely on third-party service providers for certain aspects of our business, including for certain information systems and technology, as well as administration of the StepStone Funds.

These third-party service providers and their vendors are also susceptible to cyber and security threats.

Any interruption or deterioration in the performance of these third parties, failures of their information systems and technology or cyber and security breaches could put our sensitive information at risk or result in the shutdown of a service provider, and indemnification by, or insurance coverage of, such service providers may not be sufficient to cover any damage or loss, which could impair the quality of the funds’ operations and harm our reputation, thereby adversely affecting our business, financial condition and results of operations.

We also face cybersecurity risks associated with sensitive information provided to third parties.

We rely on third-party service providers for certain aspects of our business, including for certain information systems and technology, as well as administration of the StepStone Funds.

Additionally, each of the jurisdictions in which we operate may require us to provide sensitive information to government agencies, including biographical, financial and tax information relating to our personnel or investments.

The information systems of government agencies have previously been compromised and we believe they continue to be targets for cyber-criminals.

Third-party service providers and their vendors are also susceptible to cyber and security threats.

Any interruption or deterioration in the performance of these government agencies or third-party service providers, failures of their information systems and technology or cyber and security breaches could put our sensitive information at risk or result in the shutdown of a service provider, and indemnification by, or insurance coverage of, such service providers may not be sufficient to cover any damage or loss, which could impair the quality of the funds’ operations and harm our reputation, thereby adversely affecting our business, financial condition and results of operations.

We may also need to expend additional resources to adapt our cybersecurity program to the evolving security landscape and to investigate and remediate vulnerabilities or other identified risks.

We are subject to numerous laws, regulations, and contractual obligations designed to protect our regulated data, and that of our customers.

These include complex and evolving laws, rules, regulations, and standards relating to cybersecurity and data privacy in a number of jurisdictions.

Such laws, rules, regulations, and standards pose increasingly complex compliance challenges and potential costs.

Any loss of sensitive information and failure to comply with these requirements or other applicable laws and regulations in this area, could result in significant regulatory non-compliance exposure or other penalties and legal liabilities.

The result of these adverse incidents can include the inability to provide services to our clients, other disruptions of our business, corruption or modifications to our data, fraudulent transfers or requests for transfers of money, liability for stolen assets or information, increased cybersecurity protection and insurance costs and litigation.

Risk related to emerging and changing technology, including artificial intelligence, could impact our results of operations or financial condition.

Our future success depends, in part, on our ability to anticipate and respond effectively to the risk of, and the opportunity presented by, digital disruption and other technology change.

These may include new applications based on artificial intelligence, machine learning, or new approaches to data mining.

Risks related to artificial intelligence, including our use of third-party products incorporating artificial intelligence, include the generation of factually incorrect or biased results, also known as hallucinations, data security vulnerabilities, potential IP infringement, mishandling of confidential, proprietary, or private information, and potentially problematic third-party license terms.

In addition, the SEC has recently proposed new rules on the use of artificial intelligence by investment advisers that could add to the compliance risks and burdens of using this technology.

We may also be exposed to competitive risks related to the adoption and application of new technologies by established market participants or new entrants.

We may not be successful in anticipating or responding to these developments on a timely and cost-effective basis.

Additionally, the effort to gain technological expertise and develop new technologies in our business may be costly.

Investments in technology systems and data analytics capabilities may not deliver the benefits or perform as expected or may be replaced or become obsolete more quickly than expected, which could result in operational difficulties or additional costs.

If we cannot offer new artificial intelligence-facilitated technologies or data analytics solutions as quickly as our competitors, or if our competitors develop more cost-effective technologies, data analytics solutions or other product offerings, we could experience a material adverse effect on our operating results, customer relationships and growth opportunities.

Poor implementation of new technologies, including artificial intelligence, by us or our third-party service providers, could subject us to additional risks we do not understand or cannot adequately mitigate, which could have an impact on our results of operations and financial condition.

Employee misconduct could harm us by impairing our ability to attract and retain clients and subjecting us to significant legal liability and reputational harm.

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We may face damage to our professional reputation if our services are not regarded as satisfactory or for other reasons and may face legal liability to our clients and third parties under securities or other laws and regulations.

As a private market solutions services firm, we depend to a large extent on our relationships with our clients and our reputation for integrity and high-caliber professional services to attract and retain clients.

As a private markets investment firm focused on providing customized investment solution services, we depend to a large extent on our relationships with our clients and our reputation for integrity and high-caliber professional services to attract and retain clients.

As a result, if a client is not satisfied with our services, such dissatisfaction may be more damaging to our business than to other types of businesses.

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fluctuations in foreign currency exchange rates that could adversely affect our results;

unexpected changes in trading policies, regulatory requirements, tariffs and other barriers;

unexpected changes in trading policies, regulatory and licensing requirements, tariffs and other barriers;

local labor conditions, protections and regulations;

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The substantial growth of our business has placed, and if it continues, will continue to place, significant demands on our infrastructure, our investment team and other employees, and will increase our expenses.

We will need to continuously invest in our human resources and our infrastructure as a result of the increasingly complex investment management industry, increasing sophistication of clients and our expansion into new jurisdictions.

We will need to continue to invest in our human resources and our infrastructure as a result of the increasingly complex investment management industry, increasing sophistication of clients and our expansion into new jurisdictions.

In addition, our newer private wealth platform has and will require ongoing development of new infrastructure.

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If a new business generates insufficient revenue or if we are unable to efficiently manage our expanded operations, our business, financial condition and results of operations could be materially and adversely affected.

We have entered into long-term agreements that provide for us to acquire all the equity interests of our asset class entities that we do not currently own.

On February 7, 2024, we entered into transactions agreements with each of SRA, SRE, and SPD (the “Asset Class Entities”).

The transaction agreements provide a path to us owning all of the outstanding equity interests of SRA, SRE and SPD.

The transaction agreements provide for, among other things and subject to the terms and conditions therein, the exchange of the sellers’ equity interests in each Asset Class Entity for a combination of (i) newly-created Class D equity interests in StepStone Group LP, with terms substantially similar to the existing Class C units, in the case of SRE and SRA, or shares of our Class A common stock, in the case of SPD and (ii) cash, in up to ten annual exchanges beginning in 2024 (increased to up to fifteen annual exchanges in certain circumstances in case of the sellers of SRA equity interests).

The portion of each Asset Class Entity’s equity interests to be acquired in each annual exchange is set forth in an exchange schedule attached to the applicable transaction agreement and is approximately 5% of each Asset Class Entity on each contemplated annual exchange date.

The amount of consideration to be delivered will be calculated using exchange ratios determined each year based on a formula establishing an assumed value of each Asset Class Entity based on its estimated adjusted net income, relative to an adjusted trading multiple for the Class A common stock relative to our estimated adjusted net income.

Because the amount of consideration to be paid will be determined based on future adjusted net income and trading values, we do not know whether any particular exchange will be accretive to our existing shareholders and can make no assurances that the exchanges will result in enhanced cash flows or results of operations.

In addition, because each exchange will be subject to closing conditions and regulatory approvals, we cannot assure you that any particular annual exchange will occur on the contemplated timeline or at all.

We may acquire additional businesses or assets or form joint ventures.

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and certain other lenders party thereto.

See note 9 to our consolidated financial statements included elsewhere in this annual report for more information.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Revolving Credit Facility” and note 9 to our consolidated financial statements included elsewhere in this annual report for more information.

Borrowings under the Credit Agreement, or any future debt we undertake, will expose us to the typical risks associated with the use of leverage.

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Difficult or volatile market and political conditions can adversely affect our business by reducing the market value of the assets we manage, causing our clients to reduce their investments in private markets, reducing the number of high-quality investment managers with whom we may invest, and reducing the ability of our funds to raise or deploy capital.

The global financial markets and business climate have recently deteriorated and may continue to deteriorate, including due to continued rising interest rates, ongoing high inflation, reduced availability of credit, recession risk, regional and international bank failures, changes in laws and regulation, terrorism or political uncertainty, war (including the ongoing Russia-Ukraine conflict), and potential recession.

For example, inflation in the U.S.

could remain high or increase, and heightened competition for workers, supply chain issues and rising energy and commodity prices have contributed to increasing wages and other inputs, which may put pressure on the profit margins of portfolio companies within our private market funds.

The extent and impact of any sanctions imposed in connection with the Russia-Ukraine conflict may also cause additional financial market volatility and impact the global economy.

The extent and impact of any sanctions imposed in connection with geopolitical conflicts may also cause additional financial market volatility and impact the global economy.

Volatility and disruption in the equity and credit markets can adversely affect the portfolio companies in which private markets funds invest and adversely affect the investment performance of the StepStone Funds and advisory accounts.

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See “—Evolving laws and government regulations could adversely affect us.”

A major public health crisis, including a resurgence of the COVID-19 pandemic or a similar pandemic, could again severely disrupt the global financial markets and business climate and adversely affect our business, financial condition and results of operations.

A major public health crisis, such as COVID-19 pandemic or a similar pandemic, could again severely disrupt the global financial markets and business climate and adversely affect our business, financial condition and results of operations.

A major public health crisis can have unpredictable and adverse impacts on global, national and local economies.

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We are subject to numerous regulations that may impact our business model.

In the United States, our advisory and investment management businesses are subject to regulation by the SEC, the Commodity Futures Trading Commission, the Internal Revenue Service (the “IRS”) and other regulatory agencies, pursuant to, among other laws, the Investment Advisers Act, the Securities Act, the Internal Revenue Code of 1986, as amended, (the “Code”), the Commodity Exchange Act, and the Exchange Act.

The SEC in particular has increased its regulation and scrutiny of the asset management and private equity industries in recent years, focusing on the private equity industry’s fees, allocation of expenses to funds, valuation practices, allocation of fund investment opportunities, disclosures to clients, the allocation of broken-deal expenses, the management of conflicts of interest disclosures and other fiduciary obligations.

The SEC has also heightened its focus on the valuation processes employed by investment advisers.

In the United States, our advisory and investment management businesses are subject to regulation by the SEC, the Commodity Futures Trading Commission, the Internal Revenue Service (the “IRS”) and other regulatory agencies, pursuant to, among other laws, the Investment Advisers Act, the Investment Company Act, the Securities Act, the Internal Revenue Code of 1986, as amended, (the “Code”), the Commodity Exchange Act, and the Exchange Act.

The Partnership, along with certain of our consolidated subsidiaries, is registered as an investment adviser with the SEC and is subject to the requirements and regulations of the Investment Advisers Act.

Such requirements relate to, among other things, maintaining an effective compliance program, incentive fees, solicitation arrangements, allocation of investments, recordkeeping and reporting requirements, disclosure requirements, limitations on agency cross and principal transactions between an adviser and their advisory clients, as well as general anti-fraud prohibitions.

As a registered investment adviser, the Partnership has fiduciary duties to its clients.

A failure to comply with the obligations imposed by the Investment Advisers Act, including recordkeeping, advertising and operating requirements, disclosure obligations and prohibitions on fraudulent activities, could result in investigations, sanctions and reputational damage, and could materially and adversely affect our business, financial condition, results of operations and business reputation.

The SEC has increased its regulation and scrutiny of the asset management and private equity industries in recent years, focusing on the private equity industry’s fees, allocation of expenses to funds, allocation of fund investment opportunities, disclosures to clients, the allocation of broken-deal expenses, the management of conflicts of interest disclosures, valuation practices and other fiduciary obligations.

The SEC has also recently fined financial services firms, including investment advisers, for insufficient monitoring of off-channel communications.

The lack of readily ascertainable market prices for many of the investments made by the StepStone Funds or the funds in which we invest could subject our valuation policies and processes to increased scrutiny by the SEC.

The SEC also adopted new Private Fund Adviser rules on August 23, 2023.

The new rules require significant new reporting and disclosure requirements and implement new limitations on various dealings with clients that the SEC has deemed unfair or present conflicts of interests.

In particular, the new rules will, among other things, require private fund advisers to (i) deliver quarterly reports to their investors providing standard performance metrics and information relating to fund expenses, (ii) provide full disclosure to all investors of any preferential treatment provided to some but not all investors in a fund, (iii) obtain audited financial statements for all of their funds and deliver copies of those financial statements to their investors, and (iv) obtain an independent fairness or valuation opinion in connection with any “adviser-led secondary transaction” involving a fund.

In addition, the new rules impose substantive restrictions on various practices, including allocation of various types of regulatory costs to an adviser’s private funds, clawbacks of carried interest net of taxes, non pro rata allocations of transaction expenses, and borrowing from a fund.

The new rules will increase operational costs and prevent certain practices that were previously industry standard business practices.

In addition, the SEC has recently adopted amendments to Regulation S-P (the privacy regulations applicable to financial institutions, including investment advisers) that will expand the scope of the regulation and mandate notification to clients and customers in the event of privacy breaches.

The SEC has also adopted new rules related to cybersecurity applicable to public companies and has proposed a number of new rules that, if adopted, could also have a significant impact on our business.

These include new rules proposed by the SEC on ESG investing, safekeeping of client assets, management of cybersecurity risk by investment advisers, monitoring of service providers, and the use of artificial intelligence.

In addition, the SEC and FinCEN have recently jointly proposed a new rule that will require investment advisers to adopt formal anti-money laundering and customer identification programs.

If all of these rules are adopted in substantially the form in which they have been proposed, this will result in a significant increase in the compliance risks and regulatory burden of operating our business.

Our failure to comply with applicable laws or regulations could result in fines, suspensions of personnel or other sanctions, including revocation of our registration as an investment adviser.

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In addition, a court could find that one of our co-investment funds has formed a partnership-in-fact conducting a trade or business and would therefore be jointly and severally liable for the portfolio company’s unfunded pension liabilities.

In addition, the Partnership, along with certain of our consolidated subsidiaries, is registered as an investment adviser with the SEC and is subject to the requirements and regulations of the Investment Advisers Act.

As a registered investment adviser, the Partnership has fiduciary duties to its clients.

In addition, the European Union’s General Data Protection Regulation (the “GDPR”) and the California Consumer Privacy Act (“CCPA”) impose stringent data protection requirements, and we may also be subject to additional state privacy laws.

As noted in “Business—Regulatory Environment—Foreign Regulation,” we provide investment advisory and other services and raise funds in a number of countries and jurisdictions outside the United States.

We continue to assess the impact of evolving regulatory developments outside of the United States on our business including, but not limited to, the revised EU regime for alternative investment fund managers, the new EU anti-money laundering and counter-terrorist financing regime, EU rules relating to digital operational resilience for the financial sector and the new EU framework for the collation and publication of sustainability information in annual reporting.

In addition, the European Union’s General Data Protection Regulation (the “GDPR”) and the California Consumer Privacy Act (“CCPA”) impose stringent data protection requirements, and we are also subject to additional national and state privacy laws.

There are substantial financial penalties for breach of the GDPR, including up to the higher of 20 million Euros or 4% of group annual worldwide turnover.

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Among other things, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, generally prohibit the issuance of options and impose stringent governance and board independence requirements.

In addition, we will depend on third parties to assist us in complying with regulatory obligations with respect to such registered funds and business development companies.

In addition, we depend on third parties to assist us in complying with regulatory obligations with respect to such registered funds and business development companies.

Requirements imposed by the Investment Company Act, including limitations on capital structure, the ability to transact business with affiliates and the ability to compensate senior employees, or the failure of our third-party vendors to assist us with required compliance could materially and adversely affect our businesses, financial condition and results of operations.

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The Biden administration and the current leadership of the SEC have also signaled that they intend to seek to enact further changes to numerous areas of law and regulations currently in effect.

In particular, the SEC has signaled an increased emphasis on investment adviser and private fund regulation and has adopted new rules that impose significant changes related to reporting on Form PF and Rule 10b5-1 insider trading plans, and has proposed a number of new rules that, if adopted as proposed, would impose further significant changes on investment advisers and their management of private funds (including with respect to fund audits, adviser-led secondary transactions, fee and expense allocation and reporting, beneficial ownership reporting under Exchange Act Sections 13(d) and 13(g), borrowings, indemnification, side letters, cybersecurity risk management, and annual compliance reviews), and the SEC is expected to propose additional changes in the future.

In particular, the SEC has signaled an increased emphasis on investment adviser and private fund regulation.

As discussed above, for example, the SEC has recently adopted a number of significant new rules that may have a significant impact on our business, including new rules imposing a number of significant new disclosure and reporting requirements on private fund advisers and imposing substantive restrictions on certain types of practices by the private fund advisers that the SEC has deemed to be unfair or present conflicts of interest.

A number of new rules have also been proposed by the SEC that, if adopted, could also have a significant impact on our business.

These include new rules proposed by the SEC on ESG investing, safekeeping of client assets, management of cybersecurity risk by investment advisors, monitoring of service providers, and the use of artificial intelligence.

In addition, the SEC and FinCEN have recently jointly proposed a new rule that will require investment advisers to adopt formal anti-money laundering and customer identification programs.

The SEC is expected to propose additional changes in the future.

Any such changes, including with modifications, whether enacted under current or future leadership, could have a significant effect on private funds and private fund advisers and their operations, including increasing compliance burdens and regulatory costs, restrictions on the ability to receive expense, indemnification and other cost reimbursements, and heightened risk of regulatory enforcement action such as public sanctions, restrictions on activities, fines and reputational damage.

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Tax rates in these jurisdictions may be subject to significant change.

For example, the Inflation Reduction Act of 2022 imposes, among other things, a new excise tax on stock repurchases which could adversely impact the amount and/or timing of tax we may be required to pay.

If our effective tax rate increases, our results of operations and cash flow could be adversely affected.

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and other countries have begun imposing sanctions on Russia in connection with the ongoing Russia-Ukraine conflict, which may impact us, StepStone Funds and our portfolio companies to a degree which remains uncertain.

Different laws contain conflicting provisions, making compliance with all laws more difficult.

Different laws contain conflicting provisions and continue to evolve, making compliance with all laws more difficult.

Because different interpretations for current sanctions law may exist, we could become involved in disputes with respect to actions taken in compliance with our understanding of such laws.

If we fail to comply with these laws and regulations, we could face claims for damages, civil or criminal financial penalties, reputational harm, incarceration of our employees, restrictions on our operations and other liabilities, which could negatively affect our business, results of operations and financial condition.

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We provide investment advisory and other services and raise funds in a number of countries and jurisdictions outside the United States.

In a number of these countries and jurisdictions, which include the UK, the EU, the European Economic Area (“EEA”), and certain of the individual member states of each of the EU and EEA (including Ireland and Luxembourg), Switzerland, Japan, Korea, Canada and Brazil, our operations, and in some cases our personnel, are subject to regulatory oversight and affirmative requirements.

In a number of these countries and jurisdictions, which include the UK, the EU, the EEA, Switzerland, Japan, Korea, Canada, Brazil, and Singapore, our operations, and in some cases our personnel, are subject to regulatory oversight and affirmative requirements.

These requirements variously relate to registration, licenses for our personnel, periodic inspections, the provision and filing of periodic reports, and obtaining certifications and other approvals.

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Failure to maintain compliance with applicable laws and regulations could result in regulatory intervention, adversely affect our business or ability to provide services to our clients and harm our reputation.

The European Union Markets in Financial Instruments Directive II (“MiFID II”), which became effective on January 3, 2018, requires, among other things, all MiFID II investment firms to comply with more prescriptive disclosure, transparency, reporting and recordkeeping obligations and enhanced obligations in relation to the receipt of investment research, best execution, product governance and marketing communications.

In certain jurisdictions, including emerging markets jurisdictions, StepStone believes it operates appropriately under exceptions to applicable financial regulations.

If, however, a regulator disagrees with our approach or interpretations, we could be subject to sanctions or fines and related reputational harm, or be limited in our ability to access such markets.

The European Union Markets in Financial Instruments Directive II (“MiFID II”) requires, among other things, all MiFID II investment firms to comply with more prescriptive disclosure, transparency, reporting and recordkeeping obligations and enhanced obligations in relation to the receipt of investment research, best execution, product governance and marketing communications.

As we operate investment firms that are subject to MiFID II (including as applicable in the UK), we were required to implement revised policies and procedures to comply with MiFID II where relevant, including where certain rules have an extraterritorial impact on us.

Compliance with MiFID II has, therefore, resulted in greater overall complexity, higher compliance, administration and operational costs, and less overall flexibility.

The complexity, operational costs and reduction in flexibility may be further compounded as a result of UK’s departure from the EU.

See “The exit of the UK from the EU (Brexit) could adversely affect our business and our operations.” This is because the UK is both:

(i) no longer generally required to transpose EU law into UK law and (ii) has transposed certain EU legislation into UK law subject to various amendments and subject to the UK Financial Conduct Authority’s oversight rather than that of EU regulators.

Taken together, this could result in divergence between the UK and EU regulatory frameworks.

Outside the UK and EEA, the regulations to which we are subject relate primarily to registration and reporting obligations.

It is expected that additional laws and regulations will come into force in the UK, the EEA, the EU, and other countries in which we operate over the coming years.

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In addition, there may be future changes to the AIFMD and UCITS regimes and also further regulation adopted which may impact those parts of our business operating within the EU.

For instance, key requirements under Directive (EU) 2019/1160 and Regulation (EU) 2019/1156 on the cross-border distribution of collective investment undertakings came into effect in EU member states from August 2, 2021.

For instance, key

requirements under Directive (EU) 2019/1160 and Regulation (EU) 2019/1156 on the cross-border distribution of collective investment undertakings came into effect in EU member states from August 2, 2021.

Among other things, this legislation introduced rules regarding the pre-marketing of funds, including additional reporting requirements.

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In addition, a failure to successfully manage ESG-related expectations may adversely affect our reputation or erode stakeholder trust.

ESG matters have also been the subject of increased focus by regulators, including in the EU and the U.S.

For example, the European Commission has adopted new regulations as part of a package of legislative measures arising from its Action Plan on Sustainable Finance, which include, without limitation:

ESG matters have also been the subject of increased focus by regulators, including in the EU, the UK and the U.S.

For example, the European Commission has adopted regulations as part of a package of legislative measures arising from its Action Plan on Sustainable Finance, which include, without limitation:

(a) The Disclosure Regulation EU 2019/2088 regarding the introduction of transparency and disclosure obligations for investors, funds and asset managers in relation to ESG factors, which took effect beginning on March 10, 2021 and (b) The Taxonomy Regulation EU 2020/852 regarding the introduction of EU-wide taxonomy of environmentally sustainable activities, which entered into force on July 12, 2020.

These and other proposals have resulted in the Non-Financial Disclosure Regulation, EU Taxonomy Regulation and the EU Sustainable Finance Disclosure Regulation.

These legislative developments, which create a common classification system and disclosure obligations focusing on ESG issues, require additional disclosures to clients with respect to ESG factors, which may increase our compliance obligations and expenses, and could lead clients to reduce their investment with us.

These legislative developments, which create disclosure obligations focusing on ESG issues, require additional disclosures to clients with respect to ESG factors, which may increase our compliance obligations and expenses, and could lead clients to reduce their investment with us.

Our EU-based business, as well as any global product sales into the EU, is subject to these requirements.

In November 2023, the UK Financial Conduct Authority published final rules on its Sustainable Disclosure Requirements (“SDR”), introducing new rules and guidance for asset managers to make mandatory disclosures at both the manager and product levels, which aim to address potential greenwashing risks through the introduction of sustainable investment labels, disclosure requirements and restrictions on the use of sustainability-related terms in product naming and marketing, as well as through the introduction of disclosures consistent with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (“TCFD”).

The FCA has stated that it intends to further expand the SDR and labelling rules in the future.

Further, the UK is expected to create UK Sustainability Disclosure Standards (“UK SDS”) based on the sustainable disclosure standards developed by the International Sustainability Standards Board (“ISSB”).

In the likely event that divergent sustainable investing disclosure obligations arise between the U.S., UK and the EU, this may also present an increased compliance risk if we are required to comply with different regulatory standards.

In the U.S., the SEC has created a Climate and ESG Task Force in its Division of Enforcement, which has and is expected to continue to focus on identifying any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.

Separately, the SEC has identified ESG investing as an exam priority for investment advisers that offer ESG products and services.

Further, in March 2022, the SEC issued proposed regulations governing climate-related disclosure.

Further, in March 2024, the SEC issued regulations governing climate-related disclosure (which are currently stayed, however) and in 2023, California passed legislation relating to greenhouse gas emissions, climate-related financial risk, and climate-related emissions claims.

The UK Financial Conduct Authority is introducing new rules and guidance for asset managers to make mandatory disclosures at both the manager and product level.

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In addition, our brand and reputation are also associated with our public commitments to various corporate ESG initiatives, including our goals for sustainability and inclusion and diversity.

Any failure to achieve our disclosed commitments, could harm our reputation and adversely affect our client relationships or our recruitment and retention efforts.

Any failure or perceived failure to achieve our disclosed commitments, could harm our reputation and adversely affect our client relationships or our recruitment and retention efforts.

Moreover, positions we take or do not take on social issues may be unpopular with some of our employees or with our clients or potential clients, which may in the future impact our ability to attract or retain employees or clients.

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Devoting additional resources to ESG matters could increase the amount of expenses we or our investments are required to bear.

For example, collecting, measuring, and reporting ESG information and metrics can be costly, difficult and time consuming, is subject to evolving reporting standards, and can present numerous operational, reputational, financial, legal and other risks.

For example, collecting, measuring, and reporting ESG

information and metrics can be costly, difficult and time consuming, is subject to evolving reporting standards, and can present numerous operational, reputational, financial, legal and other risks.

If we do not successfully manage expectations across these varied stakeholder interests, it could erode stakeholder trust, impact our reputation, and constrain our investment opportunities.

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We may choose to manage these excess distributions through a number of different approaches, including through the payment of dividends to our Class A common stockholders or by applying them to other corporate purposes.

We may be required to fund withholding tax upon certain exchanges of Class B units into shares of Class A common stock by non-U.S.

We may be required to fund withholding tax upon certain exchanges of Class B units or newly-created Class D units into shares of Class A common stock by non-U.S.

In the event of a transfer by a non-U.S.

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federal income tax purposes) by the transferor on such transfer absent an exception.

Holders of Class B units may include non-U.S.

The partners holding Class B units in the Partnership generally will be entitled to exchange such Class B units for shares of Class A common stock on a one-for-one basis or, at our election, for cash.

Holders of Class B units or newly-created Class D units include non-U.S.

The partners holding Class B units or newly-created Class D units in the Partnership generally will be entitled to exchange such Class B units or newly-created Class D units for shares of Class A common stock on a one-for-one basis or, at our election, for cash.

To the extent withholding is required and we elect to deliver shares of Class A common stock (rather than cash), we may not have sufficient cash to satisfy such withholding obligation, and we may be required to incur additional indebtedness or sell shares of our Class A common stock in the open market to raise additional cash in order to satisfy our withholding tax obligations.

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government securities and cash items) on an unconsolidated basis.

We believe that we are primarily engaged in the investment advisory service business, specifically that of providing customized investment solutions and advisory, data and administrative services to our clients and not in the business of investing, reinvesting or trading in securities.

We believe that we are primarily engaged in the investment advisory service business, specifically that of providing customized investment solutions and advisory, and data services to our clients and not in the business of investing, reinvesting or trading in securities.

We also believe that the primary source of income from each of our businesses is properly characterized as income earned in exchange for the provision of services.

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See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Organizational Structure—Ownership of Our Businesses.” We have relied, and expect to continue to rely, on a combination of our equity ownership, governance rights and other contractual arrangements to control operations of these businesses.

As described above, SSG and the Partnership have entered into agreements with each of SRE, SRA and SPD, providing a path to full ownership of these subsidiaries.

However, these arrangements may not be as effective in providing us with control over these operations as would wholly owning these subsidiaries.

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To the extent we do not take such actions and instead, for example, hold such cash balances, substantial cash may accumulate at SSG and not be invested in our business.

In addition, Class B and Class C limited partners in the Partnership would benefit from any value attributable to such accumulated cash balances as a result of their ownership of Class A common stock following an exchange of their units for Class A common stock.

In addition, Class B, Class C and Class D limited partners in the Partnership would benefit from any value attributable to such accumulated cash balances as a result of their ownership of Class A common stock following an exchange of their units for Class A common stock.

The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.

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We currently pay dividends to our stockholders, but our ability to do so is subject to the discretion of our board of directors and may be limited by our holding company structure and applicable provisions of Delaware law.

We declared and paid our first quarterly cash dividend in the fourth quarter of fiscal 2021 and have paid a quarterly cash dividend consistently thereafter.

We have paid quarterly cash dividends consistently since the fourth quarter of fiscal 2021and have occasionally declared special dividends.

We may in the future continue to pay cash dividends to our stockholders, but our board of directors may, in its discretion, decrease the level of dividends or discontinue the payment of dividends entirely.

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During fiscal 2024, the closing price of our Class A common stock ranged from a low of $21.10, and to a high closing price of $36.41.

The closing price of our Class A common stock has fallen to as low as $21.10 in fiscal 2024 to date.

The closing price of our Class A common stock ranged from a low of $34.55, and to a high of $38.36 in fiscal 2025 to date.

The price of our Class A common stock may continue to be volatile in the future.

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Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.

Unresolved Staff Comments.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors