StepStone (NASDAQ: STEP) is valued at $5 billion on fees it charges for asset management. Those assets have ballooned on paper, driven by stakes in AI companies and SpaceX. But that boom has set up a potential bust. StepStone is obligated to buy out a stake in its retail arm, while the STEP balance sheet only has $200 million in cash. To survive the impending payout, STEP will likely need to raise billions in stock and debt. How did a major global asset manager end up in a liquidity trap?
StepStone helped popularize the “retailization” of private markets — packaging stakes in private companies and private funds into public products sold to retail investors through stockbrokers. The retail arm, StepStone Private Wealth (SPW), grew from about $3 billion in managed assets in 2024 to around $18 billion today.
Due to an ill-timed contract, StepStone must buy out the profits interests tied to that retail arm held by CH Equity Partners LLC, an entity controlled by SPW executives. Since April 1, CH Equity Partners LLC has the right to lock in a giant personal payday, using a formula tied to the private wealth arm’s paper marks. StepStone’s liability is now estimated at about $2.3 billion.
How did StepStone end up in this position? The buyout undid an even worse deal StepStone seemingly didn’t disclose at IPO. When the retail arm launched in 2019, CH Equity Partners received an option to buy SPW back from StepStone. StepStone didn’t disclose this contract in its prospectus when it went public in 2020, suggesting the company saw the agreement as immaterial. But SPW soon became core to StepStone’s business — and, in 2022, the company renegotiated its deal, agreeing to the terms of the looming buyout that now threaten to decimate its balance sheet.
StepStone says the buyout could be “accretive,” and, on paper, the deal looks reasonable. Under the hood, the firm must actually pay an extremely rich multiple on recurring fees. We estimate StepStone is paying more than 40 times the trailing recurring fee-related earnings it is actually acquiring. That’s around triple what Stepstone, itself, fetches for its stock in public markets — and a higher valuation than the top firms in the industry, like Blackstone and Apollo. In total, the stake StepStone is buying received $53 million last year in recurring fee-related earnings, less than 3% of what STEP is paying for it. In response to Hunterbrook’s request for comment, StepStone calls this math “fundamentally flawed,” saying it compares a forward-looking purchase price that “accounts for continued growth” against a single year of trailing earnings. The company says the deal is “structured to be executed at a discount to the prevailing STEP multiple.”
The gains underpinning those fees are mostly paper and largely unverifiable. In the key retail fund of SPW, over the last fiscal year, “net unrealized gains for the year were $1.87 billion, while net realized gains were only $3 million,” according to the Wall Street Journal. Over 70% of that fund’s portfolio sits in vehicles whose holdings are opaque, according to Hunterbrook’s analysis, raising questions regarding how ordinary investors can vet these marks. StepStone disputed this framing in its statement to Hunterbrook, saying SPRING’s marks are set under fund valuation policies, reviewed by “reputable external auditors” and “an independent board of trustees,” and that it obtains “positive assurance from a third-party valuation agent on all material positions at least once per year.”
To pay the bill, StepStone seemingly must dilute shareholders, issue debt, or both — with an SPW liability that has already pushed the book value below zero. Management has said the deal will be paid for “largely” in stock, likely devaluing existing shares by about a fifth, with the rest owed in cash it says it may raise in debt. StepStone told Hunterbrook in its statement that it “will be able to meet the cash requirements,” funding the cash portion through “cash on the balance sheet, future operating cash flow, capacity on our revolving credit facility, and flexibility to raise capital.” It also noted: “We remain in continuous dialogue with CH Equity Partners LLC, and we believe that we will be able to meet the cash requirements for settlement of the liability, should they decide to exercise the put option.”
StepStone defended the transaction in a detailed response to Hunterbrook. The company says the buyout is priced at a discount to StepStone’s own trading multiple, that SPRING’s marks are reviewed by external auditors and a third-party valuation agent under an independent board, and that the economics are held by an entity — CH Equity Partners LLC — whose ownership is aligned with the interests of the overall company. On its marks, StepStone has said gains may be “unrealized,” but “that does not make it unreal.”
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