Q3 2024 StepStone Group Inc Earnings Call
Participants
Kenneth Worthington; Analyst; JPMorgan Chase & Co
Benjamin Budish; Analyst; Barclays Bank PLC
Michael Cyprys; Analyst; Morgan Stanley
Alexander Blostein; Analyst; Goldman Sachs Group, Inc.
Adam Beatty; Analyst; UBS Investment Bank
Presentation
Operator
Thank you for standing by, and welcome to StepStone Fiscal Third Quarter 2024 earnings conference call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. General question. At that time, please press star one one on your touch tone. Please be advised that today's call is being recorded I would now like to introduce your host for today, Mr. Seth Weiss, Head of Investor Relations. Please go ahead.
Thank you and good afternoon all. Joining me on today's call are Scott Hart, Chief Executive Officer, Jason ment, President and Co-Chief Operating Officer, Mike McCabe, Head of Strategy, and David Parker, Chief Financial Officer.
During our prepared remarks, we will be referring to a presentation, which is available in our Investor Relations website at shareholders dot StepStone Group.com.
Before we begin, I'd like to remind everyone that this conference call as well as the presentation contains certain forward-looking statements regarding the company's expected operating and financial performance for future periods.
Forward looking statements reflect management's current plans, estimates and expectations and are inherently uncertain and are subject to various risks, uncertainties and assumptions. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to changes in circumstances or a number of risks or other factors that are described in the Risk Factors section of Capstone's periodic filings.
These forward-looking statements are made only as of today and except as required, we undertake no obligation to update or revise any of them.
Today's presentation contains references to non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our earnings release our presentation and our filings with the SEC.
In addition to our financial results, we filed an 8-K that details an agreement under which StepStone will buy in the noncontrolling interests of the infrastructure, private debt and real estate businesses. Over time. Scott and Mike will provide commentary in their remarks.
Turning to our financial results for the third quarter of fiscal 2024. Beginning with slide 3, we reported a GAAP net loss of $23.4 million. Gaap net loss attributable to StepStone Group Inc. was $20.2 million or $0.32 per share.
Moving to slide 4, we generated fee-related earnings of $50.7 million, up 19% from the prior year quarter, and we generated an FRE margin of 33% quarter reflected retroactive fees resulting from interim closings of StepStone private equity secondaries fund, StepStone multi-strategy global venture capital fund and step stones infrastructure co-investment fund, which in total contributed $8.6 million to revenue. There were no retroactive fees in the third quarter of fiscal 2023.
Finally, we earned $42.1 million in adjusted net income for the quarter or $0.37 per share. This is up from $31.2 million or $0.27 per share in the third fiscal quarter of last year, driven by higher fee-related earnings and higher net performance fees.
I'll now hand the call over to StepStone CEO. Scott Hartz.
Thank you, Seth. And good afternoon, everyone. We delivered solid performance in our fiscal third quarter, generating robust earnings, fundraising and asset growth setting StepStone up for continued success in 2024 and beyond as I mentioned, we are also excited to announce that we have entered into agreements to acquire the remaining stakes in each of our infrastructure, private debt and real estate businesses over the coming years. Mike and I will provide additional detail later in our comments.
Beginning with our results. Gross new commitments were $6 billion in the quarter, while the slower capital market conditions of the last two years have created a more challenging fundraising backdrop. We've continued to engage with existing and prospective clients who remain very constructive on the private markets and more specifically, many of the strategies that StepStone is able to offer this quarter represents the fruition of many of those conversations and reflects the strength of our client relationships, many of which we've cultivated over decades.
We continue to have a strong pipeline for fundraising across both new and existing clients. As we have commented in the past, we believe fundraising should be evaluated over a multi-period horizon. The dynamics of our business may result in episodic inflows, particularly in separately managed accounts, where we raised $4.3 billion this quarter.
However, as managed accounts largely paid fees on deployment rather than commitments. The contribution to fee-earning AUM and fee-related earnings tends to be steadier. Additionally, because of our strong retention rate, which is greater than 90%. Our separately managed account relationships are extremely sticky and provide meaningful revenue visibility.
Shifting to co-mingled funds, we generated gross inflows of $1.7 billion. We closed on $625 million in our private equity secondaries fund, where we have raised approximately $3 billion to date. We also had additional closes in our special situations real estate secondaries fund our multi-strategy global venture capital fund, our infrastructure co-investment fund and our multi-strategy growth equity fund.
We continue to see strong momentum in our evergreen private wealth products where we raised over $300 million of subscriptions for the quarter and over $1 billion in subscriptions for the last 12 months. We are excited to further expand our private wealth platform with our recent filing of the StepStone Private Credit Income Fund, what we are calling credit.
This is an interval fund for U.S. investors. The fund will focus primarily on U.S. direct lending and specialty credit and will deploy capital through co-investments and secondaries like gets prime are all private markets fund and structure. Our Infrastructure Fund credits will allow for daily subscriptions and will be investable via ticker.
We believe that the combination of bespoke separately managed accounts, co-mingled funds and our growing suite of private wealth offerings drives a sustainable pace of growth that will allow us to achieve the goal we set out at last June's Investor Day of doubling fee-related earnings by fiscal 2028. The strength of our platform creates a powerful flywheel which helps propel StepStone forward. But our most important asset continues to be the people that work so diligently to enable our success.
To that end, I'm thrilled to highlight StepStone is recent recognition from Pensions & Investments as one of the Best Places to Work in Money Management. We are a fast growing multinational asset manager with capabilities across the private markets. We have made a concerted effort to develop a strong, distinct and unified culture at StepStone by embracing our diversity in both backgrounds and capabilities. Our success has been and will continue to be dependent on our ability to attract, develop and retain talent.
Now turning to the economic integration of our asset class teams, we are thrilled to announce that we've entered into agreements to purchase the noncontrolling interest in each of these businesses over the coming years.
As a reminder, when we made the strategic decision nearly 10 years ago to expand our business from private equity into infrastructure, private debt and real estate. There were a couple of things that were clear to us. We needed to build large, experienced senior teams who have built their careers in each of these asset classes to maximize our combined success.
And we felt that offering equity ownership in the businesses that they were building would be critical to attract high-quality teams and incentivize the type of entrepreneurial behavior that has made StepStone itself a success since the time of our IPO three years ago, we have been consistent in telling you three things.
First, this structure has been working well and has had its intended results as we outlined during our Investor Day last June, the infrastructure private debt and real estate businesses have been on a similar trajectory to that of our private equity business during its first 10 years. We attribute much of that success to the quality of our team and the incentive structure driving their behavior.
Second, there has always been a shared vision that as these asset classes continue to scale, we would execute an equity exchange to improve our alignment for the next phase of StepStone growth. And third, any transaction will be done on an accretive basis for our shareholders.
We believe that the transaction agreements we've entered into achieve all of this and more while benefiting all stakeholders structure will continue to incentivize our asset class teams to drive growth in their businesses. While improving StepStone is ability to participate in that growth.
The long-term nature of the agreements help ensure that there will be no disruption to the client experience. The transaction creates a path to 100% ownership and reduces complexity over time.
And the valuation mechanism, which Mike will describe in more detail, ensures an accretive transaction. We work incredibly closely with each of our asset class heads, James, Marcel and Jeff and their teams over nearly a decade, and we look forward to the next phase of our partnership in the years ahead.
I'd now like to turn the call over to Mike, who will speak to our growth in the quarter. I'll provide greater detail on the buying of the noncontrolling interests.
Thanks, Scott. Turning to slide 7, we generated $17.5 billion of gross AUM inflows during the last 12 months with over $11 billion coming from separately managed accounts and over $6 billion coming from co-mingled funds.
Slide 8 shows our fee earning AUM by structure and asset class. For the quarter, we grew fee earning assets by $2.1 billion. While most of the net growth came from our co-mingled funds, we had positive gross contributions in both commingled funds and separately managed accounts.
We experienced $1.7 billion of distributions, including a large distribution of approximately $1 billion from our infrastructure managed account offsetting the gross AUM contributions resulting in a flat fee earning AUM growth within our SMAs.
This is consistent with the expectation we set out on our previous earnings call and represents a relatively low fee paying mandate. We had a record-breaking quarter on two important operating metrics. First, we increased our undeployed fee-earning capital. Are you back to over $21 billion. Our highest level ever, which points to the future earnings power of StepStone.
This increase comes from a strong SMA fundraising, particularly re-ups alongside some of our long-standing relationships. Our $21 billion effect includes $2.4 billion of co-mingled funds that are already raised and will be activated over the coming quarters, including $1.5 billion in RBC's secondaries fund, which we anticipate activating in the middle of this calendar year and approximately $900 million in our real estate secondaries fund, which will come off the holiday at the beginning of March.
Second, we generated over $300 million of inflows this quarter on our private wealth platform on the grounds of this success, along with feedback from our distribution partners, we launched our infrastructure product structure this past fall. And as Scott mentioned, we recently filed credit private credit fund. We expect to activate later this year.
Slide 9 shows the evolution of our management and advisory fees. We generated a blended management fee rate of 58 basis points over the last 12 months, higher than the 54 basis points for the last fiscal year. As we benefited from retroactive fees. We produce over $4.90 per share in management advisory fees over the last 12 months, representing an annual growth rate of 22%.
Since fiscal year 2019, we generated an FRE margin of 33% for the quarter, which also includes the benefit from retroactive fees. As a reminder, we expect our FRE margins will continue to expand from a combination of operating leverage and strategic cost saving opportunities. We executed on one such initiative this past quarter with the sale of our non-core subsidiary Greenspring back-office solutions for GBS, we acquired JBoss as part of the Greenspring acquisition in 2021.
GBOS. was the fund administration platform for our venture capital funds as well as a select number of third party VC funds. We sold JBoss to the team who will continue to run the business now branded Vertis and will service our VC funds as our third party administrator.
Consistent with our operating model, the run rate net benefit from this transaction is expected to increase fee-related earnings by $2 million annually before handing the call to David, I would like to take a moment to discuss the structure and time line of the buy-in of the non-controlling interests mentioned by Scott.
Earlier, we filed an eight K this afternoon, which includes the full transaction agreement, but I'll outline a few of the key points. As you are likely aware, StepStone currently owns 100% of our private equity business and roughly 50% of the infrastructure, private debt and real estate asset classes.
The agreement we announced today, pre-wire is a systematic buy-in of the interest that StepStone does not own over the coming years. We deliberately structured this as a gradual exchange to ensure our teams remain incentivized to grow their asset classes.
The primary consideration for these volumes will be StepStone equity, thereby maintaining an important alignment of interest with a smaller portion in cash. The first exchange is expected to take place this summer, subject to customary closing conditions and will account for approximately one-tenth of the 50% of the business owned by the infrastructure, private debt and real estate teams.
We plan to execute subsequent buy-ins of approximately equivalent size each year with the option to accelerate the remaining full exchange after five years of mutually agreed. As Scott mentioned, each exchange will occur on an accretive basis with each buying occurring at a discount to the prevailing set multiple. As a result, the rate of growth of income attributable to NCI. should begin to slow and eventually go away as we accumulate full ownership.
I'd now like to pass the call over to our recently appointed Chief Financial Officer, David Park. We've had the pleasure of working with David side-by-side as our Chief Accounting Officer since 2019.
Thank you, Mike, and I look forward to having the opportunity to work with all of you in the investment community. I'd like to turn your attention to Slide 11 to speak to our financial highlights for the quarter. We are in management and advisory fees of $152 million, up 18% from the prior-year quarter.
The increase was driven by growth in fee-earning AUM across commercial structures as well as $8.6 million in retroactive fees. Fee-related earnings were $50.7 million for the quarter, up 19% from a year ago. We generated an FRE margin of 33% for the quarter, up 250 basis points sequentially and consistent with the prior year period.
Moving to expenses, total cash and equity based compensation expense was $74 million, down $1 million from the prior quarter. The decline was primarily driven by adjustments to our cash bonus accrual in connection with our annual bonus cycle.
Looking ahead to our fiscal fourth quarter, while the sale of GBOS., which closed on December 31st will result in compensation savings. We expect to see an increase in overall compensation expense from our fiscal third quarter due to merit increases. Taking effect on January first, general and administrative expenses were $27 million, up $4 million sequentially.
Included in this quarter were expenses associated with our StepStone three 60 Private Markets Conference. We will host our annual Venture Capital Conference later this month. So expect to see a similar level of expenses in the next quarter. As a reminder, our G&A expenses tend to be seasonally highest in our fiscal third and fourth quarters due to these annual investor conferences.
Gross realized performance fees were $33 million for the quarter, up $14 million from last year and $26 million from the prior quarter. This period's performance fees reflect $15 million of realized carry and $18 million of incentive fees, unlike carry for which investment realizations drive the timing of revenue recognition, most of our incentive fees crystallize annually.
The $18 million of incentive fees includes $9 million for spring with the remainder from private equity and infrastructure mandates. Our fiscal second and third quarters tend to be seasonally stronger for incentive fees in periods of positive market appreciation, given spring's annual crystallization in our fiscal third quarter as well as other mandates that are recognized in these periods.
In terms of performance fee related compensation comp tied to our private equity funds have a roughly 50% payout ratio, while compensation related to our private wealth funds tends to have a higher payout ratio.
Moving to Slide 12. Management and advisory fees per share grew 18% for the year-to-date period and 22% over the long-term periods in fiscal 2019, gross realized performance fees per share were down 56% for the year to date period and up 11% over the long term period.
Adjusted revenue per share was flat for the year-to-date period as growth in management and advisory fees largely offset the decline in performance fees over the long term period. Adjusted revenue per share was up 20%. Shifting to profitability on Slide 13, we grew FRE per share by 17% in our first three quarters. The increase was primarily driven by growth in management and advisory fees.
Looking over the longer term, we have generated an annual growth rate and FRE per share of 29% year to date, and I per share is down relative to last year, driven by lower performance fees, but has increased at an annual rate of 24% of the long term period.
Moving to key items on the balance sheet on Slide 14. Net accrued carry finished the quarter at $569 million, up 6% from a year ago, driven primarily by underlying valuation appreciation as a reminder, our accrued carry balances reported on a one quarter lag.
Our own investment portfolio ended the quarter at $188 million. Unfunded commitments to our investment programs were $96 million. As of quarter end, our pool of performance fee eligible capital has grown to over $70 billion, and this capital is widely diversified across multiple vintage years and over 200 programs, 75% of our net unrealized carry is tied to programs with vintages of 2018 or earlier, which means that these programs are largely out of their investment periods and in harvest mode.
Of this amount, 53% is sourced from vehicles with deal-by-deal waterfalls, meaning realized carry may be payable at the time of investment exit.
This concludes our prepared remarks. I'll now turn it back over to the operator to open the line for any questions.
Question and Answer Session
Operator
Thank you again, ladies and gentlemen, if you'd like to ask a question, please press star one one on your touchtone telephone. Again to ask a question, please star one One moment for our first.
Kenneth Worthington, JPMorgan.
Kenneth Worthington
Hi, good afternoon and thanks for taking the question on first on the SMAs. So $1.1 billion meeting commitments into fee-paying AUM, if I heard you correctly, I think you said $4.3 billion of fund raising that would eventually flow into fee-paying AUM over time. So maybe first, you ended the quarter in SMAs, I think with $56.7 billion of SMA fee-paying AUM, how big is the total asset pool that's going to migrate into fee-paying AUM over time? And I guess over what period would you expect that migration to take place? I guess it's that's where I'd like to start.
Sure. Thanks, Ken, for the question is Scott So a couple things in there. I think one just thinking about what we think was a very successful quarter from a fundraising standpoint across our SMAs that, as Mike touched on was largely driven by strong re-up activity across our client base as well as some new client additions as well as we think about how much of the current undeployed fee-earning capital will convert into Phoenix.
Fee-earning AUM over time is really largely driven by the $21 billion of new fact Mike referenced Of that, about 2.5 is in co-mingled funds that will activate. And over the next couple of quarters, the majority of the rest of that undeployed capital is in the form of separate accounts. As a reminder, in our separate accounts tend to pay on invested or deployed capital, whereas the co-mingled funds tend to pay on committed.
There would be some co-mingled funds in that number, but largely driven by separate accounts, and we'd be consistent in our sort of guidance around how to think about the deployment of those vehicles. We've always talked about to be deployed over a three to five year time period, and that continues to be consistent today.
Kenneth Worthington
Okay. Thank you. And I haven't made it through the 8-K, so I apologize if this is in here. So on the buyout of the NCI. for real estate and for real estate and credit, I know you said one one-tenth of the 50% goes this summer. What is the cadence of the continuation of that buyout? Is it one-tenth a year? Is it happening every quarter? Like what is the cadence of what we should expect? And when does that sort of wrap up?
Sure. So the cadence will be at one-tenth per year over the next five years to start, there will be after five years the potential to accelerate the buy-in of the remaining interest, if mutually agreed, but otherwise would continue on any essentially be done over a 10-year period with with one exception, which is that infrastructure could be done over a 15-year period.
So yes, all that detail laid out in the transaction agreements, which as you pointed out, we wouldn't have had time to review in any detail at this point in time, but that will happen on an annual basis with the potential to accelerate after five years. Otherwise base case is being done over 10 years.
Kenneth Worthington
Great. Congrats on getting that done and thanks for taking my questions.
Thanks very much.
Operator
Benjamin Budish, Barclays.
Benjamin Budish
Hi, good evening and thanks for taking the questions. But maybe first, can you unpack a little bit more of the incentive fee dynamic? I think the number was a bit probably a bit higher than most of us were expecting. It was very helpful color on the Sprint Cup or contribute as prime contribution versus the other pieces. But can you maybe just talk a little bit more about what that cadence should look like going forward?
Obviously, it will be somewhat contingent on performance, but how should we sort of think about that just given this is a was it was obviously quite a good quarter for that. And what should we sort of I think you'd be thinking through for the next on a yearly basis, if you can kind of help there.
Yes, Ben, this David, thanks for the question of our incentive fees are generally tied to programs to either sit outside of StepStone vehicles. Or our private wealth funds. So really they tend to crystallize annually and there really are some in our second and third fiscal quarters. And so as if you think about it spring was roughly half of the $18 million.
And as the fund grows, you can imagine the incentive fee growing in the fiscal third quarter as well. But again, typically, you should expect some modest incentive fees over the next couple of quarters, but the second and third quarter should typically be the strongest.
Benjamin Budish
Okay. That's helpful. And then maybe one strategic question sort of on the retail side with as prime, you are one of the first to market with a sort of broad like private markets vehicle on. And I think versus at least the public companies we are looking at who are a bit bigger and tend to be more concentrated in the wires. You do have a bit of a different distribution strategy but just any thoughts on the competitiveness with the private credit fund?
It seems like there are more maybe options in the market, but at the same time, you've got some differentiated distribution through like the RA channel, which is maybe a little bit less contested, but just how are you feeling about sort of the competitive environment for that product specifically, just given there are already some other incumbents out there with an offering?
Thanks. Ben, this is Jason. So as you think about where we are going to have competitive edge in the private sorry, in the private wealth channels and the credit fund that we are bringing is a multi-manager vehicle, and that compares very favorably in our mind relative to the single manager vehicles the private BDCs and like that are out there in private credit.
There is a performance benefit through diversification through number of loans and number of managers. And we've got white paper research out there on that point. And there is also a benefit from being able to scale deployments and with an open architecture model. And so relative to the single manager BDCs we think we've got we've got space there is very few comps out there in terms of the multi-manager, though.
So there is one out there that that's quite prevalent. What we've done to differentiate there is that a credit Creditex will be a blend of direct lending and specialty credit as opposed to a pure play direct lending or pure play specialty credit fun.
Benjamin Budish
Okay, got it. Thank you very much for taking the questions.
Operator
Michael Cyprys, Morgan Stanley.
Michael Cyprys
Great thank you. Good afternoon. Congrats on the NCI. an announcement that's great to see. Maybe just to start their home. Maybe you could talk a little bit about how you approach valuation dynamics with the buy and what sort of mix of stock and cash can we expect to see any particular lockups on the stock portion? And what's the sort of expected magnitude of accretion things.
And so Mike, maybe I will start there. This has gotten and hand it off to Mike McCabe to touch on and part of the question as well. But for Talbot, you thanks for the comment there and congratulations. We're quite excited about it and as our teams here.
So look at the way that we approach the valuation and really the way that we're owed to deliver on what we have suggested all along to you and our public shareholders to deliver accretive an accretive transaction with this structure, the valuation at a discount to the StepStone trading multiple. It will be on a sliding scale, depending on exactly where it is that we are trading a firm at that at that time, but that's clearly a big part of locking in an accretive transaction.
I'll maybe hand it to Mike to talk through just how you want to think about the second half of your question there.
Great. Thanks, Scott, and thanks, Mike. Yes, we're very excited about this as we announced at our IPO and at our Investor Day in June of last year. This was a priority, and we've kind of reached a stage of scale and team and global footprint across our platform where it made sense to proceed with this mechanism as Scott mentioned, the buy-in of the NCI. will be done at a discount to the prevailing step multiple. And back to Ken's question earlier, it will be done at a cadence of once per year.
And just the way the mechanism works is the larger the multiple that StepStone is trading at the greater the discount. That's the sliding scale that Scott mentioned can go into the transaction agreement and contract a little more detail. But for the purposes of this call, the range of discount you should expect based on where we're trading could be anywhere between 10% to 30% of StepStone prevailing multiple at the time.
In terms of other aspects of the transaction agreement, I would encourage you to go into the document, of course, follow up with Seth wise with any granular detail after that.
And sorry, I'm maybe just touch on one part of your question that I skipped over. I mean, the candidate, cash and stock component, you should think about the cash being somewhere in the 10% to 20% range, really with the remainder in the form of stock.
And there will be transfer restrictions on that that would allow them allow the team to and to sell about a third a year over the over the first three years, which have been a consistent approach we've used in the IPO, the Greenspring sale, et cetera.
Michael Cyprys
Great. Thanks for the details there. Maybe just a follow-up question on the FRE margin. Nice to see the 33% in the quarter here. And just given some of the changes that you made was selling off the fund admin business, wonder if there are any other changes as well that if you could just speak to the outlook for the FRE margin into the March quarter and also into your fiscal 25, do you think we're clearly above 30% on a quarterly basis going forward.
And then with the minority buy-in, how does that impact the FRE margin profile over time? As I believe the subs operate with a higher margin, what sort of uplift can we see from that over time?
Amichai, again, as we've talked, we really prioritize investing in the business for growth over time and our investment in the private wealth platform is one such example, technology and other areas as well as our global footprint have been key priorities for us to invest.
But we feel we have largely invested in the platform across and across the organization and expect to see margin expansion through a combination of operating leverage as well as as well as some other efficiencies that we think we can capture across the organization. But maybe I'll ask David to comment a little bit on some detail there other than to code.
David here, if you look at our composition is clearly the largest expense line item and we did have some favorability this quarter. If you normalize for the bonus accrual adjustment, you can think about run rate as roughly $75 million. And looking into next quarter and if you layer on merit increases that took effect on January first, we should largely get there.
I'm looking over time, I think the way we look at it is more on a total comp cash and equity comp as a percentage of fee revenues. It has trended in the low 50% range over the last couple of years. And you know, we well, while this may move you, you'd see some movement quarter to quarter. But, you know, we do expect this ratio to trend down gradually over time.
Some of the I guess movement you're going to see is going to be due to timing of commingled fundraising. But again, over time, we do expect our margins to trend down over time.
And maybe to follow up on your second part of your question there as the buying occurs over time, again, we report FRE on a consolidated basis. So don't expect to see margin expansion through these buy-ins per se. But again, I think it ties back to the broader comment about as we scale up broadly as an organization, we should expect to see some operating leverage continuing to kick in at at FRE growth.
Michael Cyprys
Great. Thank you.
Operator
Alexander Blostein, Goldman Sachs.
Alexander Blostein
Prepare everybody. Good evening. So another quick follow up around the around the transaction. Mike, can you clarify if you guys are buying all of the earnings, are you just buying FRE or you do an FRE and carry and how if at all, will compensation dynamics at the existing subs or the real estate and debt? How would the compensation change, if at all, for folks that work there? So would they start getting more equity in StepStone? Does anything change in like the FR. in the carry payout, anything like that?
Dirk, maybe I'll start with the first part of your question and maybe invite Scott to layer on a few comments as well. But yes, what we did the buy-in is all cash flows FRE as well as PRE. So it's management fees as well as performance fees.
And given the episodic nature of how performance fees work that was really what led to the SeaSpine taking a longer term gradual approach so that we have it's cadence of the series of buy-ins that will happen over a period of time, which should smooth out some of the ebbs and flows that we find in the performance fees.
And also, as Scott mentioned, the buying will be largely equity to just foster that important alignment of interest and some some cash. But as far as the underlying compensation to the teams is concerned, maybe I'll I'll invite Scott to share our thought.
Sure.
So no real change, for example, to how carry is treated as and Carrie will continue to go 50% of the team, 50% too. And to the house, obviously, the ownership of that will change over time. I think the biggest change from a compensation structure standpoint is the ability the ability to increasingly utilize StepStone our RSUs and stock as a component of one's compensation, consistent with the approach that we've taken really across our teams since the IPO.
And so going forward, particularly for the investment team, we have now multiple and levers to pull are components of stock between base bonus carried interest as well as ours use.
Alexander Blostein
Great. Thanks for that of my second question around the secondaries business, it seems to be a quite active and the momentum in the market continues to sort of build there for many reasons we talked about.
Can you help us frame how much of the $21 billion of capital that's not paying fees yet is sitting in secondary strategies. And one relates to those specifically, should we expect a little bit of a faster pace of deployment relative to maybe what we've seen in the past given recent market dynamics?
Yes. Ben, thanks for the question. I mean, we've never provided an exact breakout of the undeployed fee-earning capital by either strategy or asset class. But what I would tell you is when we think about the $2.5 billion of of co-mingled funds that will activate shortly at those are entirely at secondary fund between our venture capital secondaries fund and our special situation, real estate secondaries fund.
But the activation of those will be less driven by rating. I mean there is a rapid deployment that you talked about. It will be driven by the fee holiday on the real estate fund, which will expire in early March here as well as the completion of the investment of the prior venture secondaries fund, which again, we expect sometime middle of this of this calendar year.
As we think about what remains in that undeployed fee-earning capital number again, haven't ever provided an exact breakdown, but secondaries is not as meaningful of a component of the undeployed capital relative to some of our co-investment and primary strategies today because that's helpful color.
Alexander Blostein
Thank you.
Operator
Adam Beatty, UBS.
Adam Beatty
Thank you and good afternoon. A couple of questions on the NCI. by and great to see, you know, the structure laid out and and, you know, kind of the culmination of that sort of long term process. So just wondering if there are any contingencies around the performance of the teams in any way, just either around the timing or amount or valuation?
And also quick clarification around the potential acceleration after five years. Is that like an all or nothing kind of scenario? Or could it be sort of accelerated without necessarily completing completing the process. So that would be great to get some color and some details.
And also maybe if you could whether or not you would to the extent that you did more M&A in the future, whether you would look to have a similar structure, something different things?
Yes, a couple of questions there. So maybe taking them in order, is there a performance related component to it. The main part of that is the financial performance of the businesses, which will ultimately drive the value of those businesses over time.
And so I'm really our view there is we've come up with a structure that will continue to incentivize those teams to grow their businesses over time. And to the extent they're able to were successful in doing that, they will they will benefit from that, that performance.
And on your second question around the acceleration, really anytime anytime after the five year point, if we were to mutually group agree to accelerate. That would result in and the complete buyout to where we would own 100% of the relevant asset class. It doesn't have to be all or nothing in a sense that you may have one asset class where we mutually agreed to accelerate, but not all three.
But at that point in time, if there was an acceleration, it would result in us owning 100% of the equity at that time to join us.
And to answer your revenue question, but before I do, I'll also put a clarification on the first question of contingencies. We lost the Noden transaction agreements that if StepStone multiple were to trade below 16 times the contingency that that could that would pause and exchange in a given year and then resume in the following year.
So wanted to just clarify that, that one minor contingency that hopefully is of help here from an M&A standpoint, I don't think this changes StepStone perspective on the market. It certainly doesn't affect our capacity or capability to execute on anything strategic in that nature. As we've mentioned, there's a very small amount of cash involved in this transaction, 10% to 20%.
That is easily covered by our revolver that we currently have in place. So we feel we have the flexibility in the capital structure to continue to march forward on a strategic front should should opportunities present themselves.
Adam Beatty
That's great. Thank you, guys, for all those highlights. And then just quickly around co-mingled fund raise and the outlook there. Just wanted to get maybe a high-level take on what you've kind of got in the plan for the coming year or two, which vintages might be might be coming up for new fund raise and also kind of what you're hearing from LPs at the current moment. Thanks.
Sure. I mean, certainly in terms of what we are hearing from LPs at the moment. And it feels like sentiment is moving in the right direction. And you can imagine with, for example, the S&P 500 hitting 5,000 for the first time today, and we're not talking as much about the denominators that we are still talking about the numerator effect in the sense that the rapid deployment the strong sort of performance and valuations of private markets portfolios and the slowdown in distributions does still have some investors over allocated relative to their target allocations.
But not only the consumer recovery in the public markets, but views on interest rates and Vinod views on the current outlook are certainly meeting that LPs are more willing to commit and transact today and we've been the beneficiary of that with some of the closings that we referenced during this past quarter as well as some of the fundraising momentum that we have at the moment.
And so as we think about what we have in market at the moment, we do have a number of our our key co-mingled funds and strategies in the market. We're late in the late stages of fundraising for our private equity secondaries fund, which as we referenced, and that now stands at about at $3 billion.
Similarly, our venture second venture capital secondaries fund now stands at about $1.5 billion, and those funds will continue to fund raise, but should wrap up in the first half of this of this calendar year. We continue to raise for our special situation. Real estate secondaries fund, which has good momentum, is very well positioned for the current for the current environment.
And we're in market with other key strategies like our growth, multi-strategy growth, equity fund, our inaugural infrastructure co-investment fund, as well as our corporate direct lending fund. So lots of opportunity in the market from a co-mingled standpoint right now will obviously also continue to be raising across each of our private wealth strategies for the for you going going forward here.
Adam Beatty
Perfect. Thanks for the rundown, Scott, appreciate it.
Operator
Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Scott Hart for any closing.
Great. Well, thanks, everyone. For joining us today. We appreciate the questions and the continued interest in StepStone, and we look forward to speaking with you next quarter. Thank you.
Operator
Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.