StepStone Group (STEP) risk factors, FY2025 10-K

Risks Related to Our Business

1. 01The success of our business depends on the identification and availability of suitable investment opportunities for our clients
2. 02If 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
3. 03Continued positive performance of investments we make on behalf of clients or we recommend to our clients is not assured and may not result in positive performance of an investment in our Class A common stock
4. 04Competition for access to investment funds and other investments we make for our clients is intense
5. 05Our ability to retain our senior leadership team and attract additional qualified professionals is critical to our success
6. 06Our failure to appropriately manage conflicts of interest could damage our reputation and adversely affect our business
7. 07We have obligations to clients and other third parties that may conflict with stockholders’ interests
8. 08Recent 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
9. 09Clients 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
10. 10Our failure to comply with investment guidelines set by our clients could result in damage awards against us or a reduction in AUM, either of which would cause our earnings to decline and adversely affect our business
11. 11Valuation methodologies for certain assets in the StepStone Funds are subjective, and the values of assets established pursuant to such methodologies may never be realized, which could result in significant losses for the StepStone Funds
12. 12We may not be able to maintain our desired fee structure as a result of industry pressure from private markets clients to reduce fees, which could have a material adverse effect on our profit margins and results of operations
13. 13We may need to pay “clawback” or “contingent repayment” obligations if and when they are triggered under the governing agreements of our funds
14. 14Our investment management activities may involve investments in relatively high-risk, illiquid assets, and we may lose, or our clients may lose, some or all of the amounts invested in these activities or fail to realize any profits from these activities for a considerable period of time
15. 15The StepStone Funds may face risks relating to undiversified investments
16. 16Banking system volatility may adversely affect the results and financial condition of the StepStone Funds or StepStone generally
17. 17If deposit accounts or credit facilities are held at the same financial institution, and such institution fails, a StepStone Fund may need to make more frequent capital calls to its investors and to StepStone, and the fund or its investments may be unable to fund obligations they have to third parties
18. 18The StepStone Funds make investments in funds and companies that we do not control
19. 19Our risk management strategies and procedures may leave us exposed to unidentified or unanticipated risks
20. 20The due diligence process that we undertake in connection with investments may not reveal all facts that may be relevant in connection with an investment
21. 21Restrictions on our ability to collect and analyze data regarding our clients’ investments could adversely affect our business
22. 22We and our clients depend on the reliability of our proprietary data and technology platforms and other data processing systems. 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
23. 23A 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
24. 24Cybersecurity 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
25. 25Our 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
26. 26Employee misconduct could harm us by impairing our ability to attract and retain clients and subjecting us to significant legal liability and reputational harm
27. 27We 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
28. 28Our non-U.S. operations are subject to certain risks, which may adversely affect our business, financial condition and results of operations
29. 29Investments of the StepStone Funds in certain jurisdictions may be subject to heightened risks relative to investments in other jurisdictions, which may adversely affect our business, financial condition and results of operations
30. 30Revenues from our real estate asset class are subject to the risks inherent in the ownership and operation of real estate and the construction and development of real estate
31. 31Our real estate asset class is exposed to commercial real estate values and commercial real estate loans, both of which are expected to be adversely affected by decreased occupancy rates, higher prevailing interest rates and decreased credit availability
32. 32The investments we make on behalf of clients or we recommend to our clients in infrastructure assets may expose us to increased risks and liabilities
33. 33The substantial growth of our business in recent years may be difficult to sustain, as it may place significant demands on our resources and employees and may increase our expenses
34. 34We may enter into new lines of business, which may result in additional risks and uncertainties in our business
35. 35We 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
36. 36Under our option agreement with respect to SPW, we may purchase certain profits interests of SPW and the purchase price for such purchases may be substantial
37. 37We may acquire additional businesses or assets or form joint ventures
38. 38Current or future indebtedness may expose us to substantial risks
39. 39We are subject to risks in using custodians, counterparties, administrators and other agents

Risks Related to Our Industry

1. 40The investment management and investment advisory business is intensely competitive
2. 41This competitive pressure could adversely affect our ability to make successful investments and restrict our ability to raise future funds, either of which would materially and adversely affect our business, financial condition and results of operations
3. 42These events may also reduce the commitments our clients are able to devote to private markets investments generally and make it more difficult for the funds in which we invest to obtain funding for additional investments at attractive rates, which would further reduce our profitability
4. 43A 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
5. 44We operate in a heavily regulated industry and any failure to comply with the government regulations to which we are subject could adversely affect us
6. 45Evolving laws and government regulations could adversely affect us
7. 46Future changes to tax laws or our effective tax rate could materially adversely affect our company and reduce net returns to our stockholders
8. 47We may be required to pay additional taxes under the Centralized Partnership Audit Regime
9. 48Federal, state and foreign anti-corruption and sanctions laws create the potential for significant liabilities and penalties and reputational harm
10. 49Regulation of investment advisers outside the United States could adversely affect our ability to operate our business

Risks Related to Our Organizational Structure

1. 50SSG depends on distributions from the Partnership to pay any dividends, if declared, taxes and other expenses, including payments under the Tax Receivable Agreements
2. 51The IRS might challenge the tax basis step-ups and other tax benefits we receive in connection with our IPO and the related transactions and in connection with additional acquisitions of Partnership units
3. 52In certain circumstances, payments under each Tax Receivable Agreement may be accelerated and/or significantly exceed the actual tax benefits, if any, that SSG actually realizes
4. 53In certain circumstances, the Partnership will be required to make distributions to us and the existing partners of the Partnership, and the distributions that the Partnership will be required to make may be substantial
5. 54We may be required to fund withholding tax upon certain exchanges of Class B or Class D units into shares of Class A common stock by non-U.S. holders
6. 55We may have tax and other liabilities attributable to our pre-IPO investors as a result of certain reorganization transactions
7. 56A change of control of our company, including the effect of a “Sunset,” could result in an assignment of our investment advisory agreements
8. 57The Sunset Holders, who are members of our senior leadership team, beneficially owned
9. 58We rely on our equity ownership, governance rights and other contractual arrangements to control certain of our consolidated subsidiaries that are not wholly-owned, which may provide us less effective operational control than wholly owning such subsidiaries
10. 59The disparity in the voting rights among the classes of our common stock and inability of the holders of our Class A common stock to influence decisions submitted to a vote of our stockholders may have an adverse effect on the price of our Class A common stock
11. 60Distributions made by the Partnership to us may be substantial, and our ability to use the cash we receive in such distributions may be limited
12. 61The dual class structure of our common stock may adversely affect the trading market for our Class A common stock
13. 62We 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
14. 63The market price of our Class A common stock has been, and may continue to be volatile, which could cause the value of stockholders’ investments to decline
15. 64Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and may adversely affect the market price of our Class A common stock