RBC Capital Markets is betting that StepStone Group's push into private wealth is about to pay off in a big way. In a research note published Wednesday, the Canadian bank said the alternative-asset manager's private-wealth platform is scaling rapidly and could help drive adjusted earnings per share up by roughly 25% a year. RBC also flagged a planned buy-in as the next potential catalyst for the stock.
What's driving the optimism?
StepStone, which manages money in private equity, private credit, and other alternative assets, has been working to expand beyond its institutional roots. The company's private-wealth arm has grown its net asset value (NAV) about five-fold in just two years, to more than $20 billion. Quarterly inflows into that business have topped $2 billion, according to RBC.
That kind of growth suggests the firm is successfully tapping into a pool of money that has become increasingly important for alternative-asset managers: wealthy individuals and their financial advisers. Traditionally, funds like private equity and private credit were reserved for big institutions like pension funds and endowments. But in recent years, managers have been rolling out products designed for individual investors, often through advisers and wealth platforms.
RBC believes StepStone's momentum can continue as the company expands its distribution—the ways it gets its funds onto advisers' and clients' menus. The more advisers who can access StepStone's funds, the more money the firm can raise, and the more fees it can collect.
Why the buy-in matters
RBC pointed to a planned buy-in as the next potential catalyst. While the note doesn't provide specifics, a buy-in typically refers to a transaction where a company or its affiliates purchase a stake in a business or fund. In the context of StepStone, this could mean the firm buying back shares or acquiring a stake in a distribution partner to accelerate growth.
For investors, a buy-in can be a positive signal because it often indicates that management sees value in the business and is willing to put capital behind that view. It can also be a way to boost earnings per share by reducing the number of shares outstanding.
What it means for investors
For everyday investors, the key takeaway is that StepStone is betting on the growing appetite for alternative investments among wealthy individuals. This is part of a broader trend where private markets are becoming more accessible to retail investors, often through funds that require lower minimums than traditional private equity.
However, it's important to understand the risks. Alternative assets like private equity and private credit are typically less liquid than stocks and bonds, meaning your money can be locked up for years. They also carry higher fees, which can eat into returns. And while StepStone's growth is impressive, past performance is no guarantee of future results.
RBC's forecast of 25% annual adjusted EPS growth is a projection, not a promise. Adjusted earnings exclude certain one-time items, so they can look better than the actual bottom line. Investors should also consider that the broader market for alternative assets is getting crowded, with many managers chasing the same pool of wealthy clients.
The bigger picture
StepStone's story is part of a larger shift in the asset-management industry. As institutional investors become more saturated with private-market exposure, managers are increasingly turning to individual investors for growth. This has led to a wave of new products, including interval funds and tender-offer funds, which offer periodic liquidity.
For context, other firms have also been expanding their private-wealth offerings, and the competition is heating up. The success of these efforts will depend on distribution, brand, and performance—areas where StepStone appears to be making headway.
RBC's note adds to a growing chorus of analysts who see StepStone as a beneficiary of this trend. The company's focus on private wealth, combined with its planned buy-in, could provide a boost to its stock, which has been volatile like many asset managers.
For investors considering StepStone, it's worth watching how the buy-in unfolds and whether the company can sustain its fundraising momentum. As always, diversification and a long-term perspective are key.
