2025 LA Executive Leadership Awards Spotlights Southern California's Business Community
On the evening of May 12, the ballroom at the Fairmont Miramar Hotel and Bungalows Santa Monica played host to some of the best among Southern California's executive leadership, celebrating their colleagues contributions during what has proven to be a challenging start to 2025.
Hosted by Business by LA Times Studios, the event, the first of its kind, brought together business people from many different fields to gather, discuss pressing issues, gain insights from an informative panel and most importantly celebrate the real and difficult work they do keeping their companies running smoothly, their employees fruitful and well and the economy of the region pressing forward in the face of uncertainty.
The evening begin with a brisk cocktail mixer, where the gathered guests had a chance to say hello, have a sip after a long day, and most importantly, discuss their professional lives – from the boardroom to the Zoom meeting.
After seating, Anna Magzanyan, president of LA Times Studios and emcee for the Exectuive Awards, took a moment to thank the many sponsors who made this and events like it possible. In introducing the many nominees for the awards, she underscored their importance for the city and the business community in general. 'The individuals here today are redefining what it means to lead with vision, resilience and purpose,' she said.
The panel discussion, 'Leading Beyond Uncertainty: Navigating a Shifting Economy' which featured insights from David Park, president of Commercial Banking At Axos Bank, Ashley Farrell Pickett, shareholder at Greenberg Traurig, LLP and Imamu Tomlinson, CEO of Vituity and moderated by Brian Hegarty, Managing Director Of Los Angeles For Employee Health & Benefits At Marsh McClennan Agency, offered guests a pathway through the uncertainty that is defining 2025, from the recent wildfires to trade wars.
Panelist Pickett said about tariffs that many of her clients were exercising 'conscious decision-making' around hiring, and in general, being proactive about anticipating further waves of disruption, while Tomilson said that success comes from 'being your absolute authentic self.'
After a lively dinner service, where the guests discussed both the panel and their anticipation for learning who the honorees would be, the stage was set for the awards ceremony. The 250 nominees came from myriad industries, from the legal field, tech, accounting, nonprofits and more.
The 15 awards, categorized by discipline and company size, offered a diverse segment of the L.A. business community – younger, older, of every race, gender and creed – a true representation of the amazing diversity of Southern California. The finalists in each category represented the best of Los Angeles' business people.
The honoree awards, presented by Brian Hegarty, David Park, Jordan Grotzinger and Anna Magzanyan, were given to those among the finalits who have shown true grace, growth and grit during the last 24 months in their respective fields.
Here are all of the honorees:
In-House Counsel – Small to Midsize Company: Maureen Abdelsayed - Integrated Data Services - General Counsel & COOIn-House Counsel – Large Company: Rey Marcelo Rodriguez - Walt Disney - Assistant General Counsel
Head of HR – Small to Midsize Company: Michele Boersma - Quigley-Simpson - VP of Talent & CultureHead of HR – Large Company: Carlo Giovanni - Los Angeles LGBT Center - Chief People Officer
CFO – Small to Midsize Company: Joel Brouwer - Brethren Hillcrest Homes - Chief Financial OfficerCFO – Large Company: Alex Bobo - Universal Studio Group - Chief Financial Officer
CIO/CTO – Small to Midsize Company: Corey McMahon - HopSkipDrive - Chief Product & Technology OfficerCIO/CTO – Large Company: Kim Tully - Creative Artists Agency - Chief Information Officer
Founder – Small to Company: Steve Gatena - Pray.com - Founder & CEOFounder – Midsize Company: Erik Huberman - Hawke Media - Founder & CEOFounder – Large Company: Sachin Nayyar - Saviynt - Founder, CEO & Chairman of the Board
President or CEO – Small to Company: Frank Adell - Cognos Therapeutics, Inc. - Chief Executive OfficerPresident or CEO – Midsize Company: Aurelian Lis - Dermalogica - Chief Executive OfficerPresident or CEO – Large Company: Rachel Moore - The Music Center - President and Chief Executive Officer
CMO: Berkley Egenes - Xsolla - Chief Marketing & Growth Officer
Each and every one of the honorees, finalists and nominees deserve recognition – read their full bios here.
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23-05-2025
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Q4 2025 StepStone Group Inc Earnings Call
Seth Weiss; Head, Investor Relations; StepStone Group Inc Scott Hart; Chief Executive Officer, Director; StepStone Group Inc Michael Mccabe; Head of Strategy, Director; StepStone Group Inc David Park; Chief Financial Officer; StepStone Group Inc Jason Ment; President, Co-Chief Operating Officer; StepStone Group Inc Kenneth Worthington; Analyst; JPMorgan Benjamin Budish; Analyst; Barclays Capital Michael Cyprys; Analyst; Morgan Stanley Christoph Kotowski; Analyst; Oppenheimer & Co Operator Thank you for standing by, and welcome to StepStone Group's fiscal fourth-quarter 2025 earnings conference call. (Operator Instructions) As a reminder, today's program is being now I'd like to introduce your host for today's program, Seth Weiss, Head of Investor Relations. Please go ahead. Seth Weiss Thank you, and good evening. 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 Park, Chief Financial our prepared remarks, we will be referring to a presentation, which is available on our Investor Relations website at Before we begin, I'd like to remind everyone that this conference call as well as the presentation contain certain forward-looking statements regarding the company's expected operating and financial performance for future 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 StepStone periodic forward-looking statements are made only as of today, and except as required, we undertake no obligation to update or revise any of 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 to our financial results for the fourth quarter of fiscal 2025. Beginning with slide 3. We reported a GAAP net loss attributable to StepStone Group Inc. of $18.5 million or $0.24 per to slide generated fee-related earnings of $94.1 million, up 85% from the prior year quarter, and we generated an FRE margin of 44%. The quarter reflected retroactive fees primarily from our special situations real estate secondaries fund and our multistrategy growth equity fund. Retroactive fees contributed $15.7 million to fee revenues which compares to retroactive fees of $5.4 million in the fourth quarter of fiscal earned $80.6 million in adjusted net income for the quarter or $0.68 per share. This is up from $37.7 million or $0.33 per share in the fourth quarter of last fiscal year, driven by higher fee-related earnings and higher performance-related we declared a base quarterly dividend of $0.24 as well as a supplemental dividend of $0.40, both of which will be payable on June 30. We -- the full dividend payout related to this fiscal year is $1.36, up from last year's total of $0.99. I'll now hand the call over to Scott. Scott Hart Thanks, Seth. We generated record earnings this quarter, a capstone for a record fiscal year. Our fee-related earnings, FRE margin and adjusted net income per share were all at our highest levels ever for both our quarterly and annual the full year, we raised over $31 billion of assets under management and generated $27.5 billion of growth in our fee earning AUM, both record year results for StepStone. This translates to fee-earning asset growth of over 29% in fiscal 2025, which is our best organic growth rate for any 12-month period since we became a public increasing scale continues to be a tailwind for growth. Our managed account re-up rate remains above 90%. And on average, those re-upped accounts have grown at approximately 30%. Fiscal 2025 was also an excellent year for managed account expansion, with over $8.5 billion of SMA inflows or over 40% of total SMA inflows sourced from new accounts or expanded relationships. This plants the seeds for continued growth from re-ups and comingled funds are also growing. Prior to this year, our largest comingled fund was $2.6 billion. Over the last 12 months, we've closed on three comingled funds of over $3 billion, which contributed to a remarkable growing scale and scope have afforded us new opportunities. Earlier this fiscal year, we closed on our debut infrastructure co-investment fund of over $1 billion, a great result for a first-time fund. With the raising of this fund, we now have comingled funds across all four asset classes. Our second infrastructure commingled fund focused on secondaries, has been well received, and we are seeing strong had outstanding growth in our private wealth platform. which increased from $3.4 billion of assets at the end of fiscal 2024 to over $8 billion as of the end of this past fiscal year. The success in private wealth is driven by new products, expansion of distribution, growing momentum of existing products with existing distribution partners, cross-selling of funds and continued utilization of the the past fiscal year, we added credit to our private wealth suite. We now offer evergreen funds across credit infrastructure, venture and growth equity and of course, are all private markets as Prime expanded our distribution partners from roughly 300 unique platforms a year ago, to almost 500 platforms today, and we continue to expand our offerings outside the US. And the ability to purchase SPRIM credit and struts via ticker continues to be a point of value for our nearly 80% of all eligible sales being executed with those tickers. This has led to consistent growth each quarter since the inception of StepStone Private Wealth in to our highlights in the quarter. Total gross inflows were $9.9 billion, our second highest quarter on record, trailing only the first fiscal quarter of this past year. We generated a healthy balance across managed accounts, comingle drawdown funds and private wealth evergreen funds. Included in this number is $1.2 billion of Evergreen subscriptions, our best private wealth quarter fundraising combined with deployment of our undeployed fee-earning capital, drove our fee earning assets under management to over $121 billion, up $7.2 billion over last generated fee-related earnings of $94 million and an FRE margin of 44% and both of which are our best measures ever. If you were to exclude the impact of retroactive fees, our FRE margin was 40% for the quarter and was 37% for the trailing 12 months, our highest quarterly and 12-month core margin levels on record. We generated our strongest ever adjusted net income per share of $0.68, driven by records in fee-related earnings and in performance-related we have mentioned on recent calls, we have seen an improving capital market backdrop over the last 12 months, which led to increase in announced deal activity toward the end of 2024, resulting in very strong realizations and distributions in the first calendar quarter of backdrop obviously shifted in April and has seemingly shifted back in May with rapidly evolving global trade policy, driving volatility in the public markets and creating widening spreads in the private markets. But we are cautiously optimistic based on recent progress made on trade policy, we expect that we will continue to operate in an environment characterized by a result, much of our focus will continue to be on scenario planning to quickly and dynamically assess the impact by asset class, strategy, region and sector. Our scale across global private markets allows us to balance opportunities versus risk in deploying capital in the best and most appropriate investments for our. We believe our information advantage and insight into private markets allow us to capitalize on market markets have a consistent track record of outperforming their public equivalents. A meaningful portion of the industry's investment outperformance comes from limiting the downside during drawdowns while capturing all of the upside in the subsequent recoveries. That is what we saw play out in the dot-com bubble burst, the global financial crisis and the market sell off after the outbreak of for a private market investor to capitalize, it must take a long-term disciplined approach remaining invested through cycles and avoiding poor investments, whether directly in deals or in funds. This is much easier said than experience, expertise and scale enables us to consistently and tactically invest in the private markets through cycles for our have proven to be among the fastest-growing private market asset managers by being able to guide LPs across market cycles. While we are not immune to macroeconomic downturns is during periods of uncertainty when we have consistently proven our mettle and widened the gap from our that, I'll turn the call over to Mike to speak to our fundraising and asset growth in more detail. As we did at the end of last fiscal year, Mike will provide an update on our performance relative to our Investor Day goals from June of 2023. Michael Mccabe Thanks, Scott. Turning to slide 8. We generated over $31 billion of gross AUM inflows during the fiscal year. Approximately $21 million of these inflows came from separately managed accounts and over $10 billion came from our co-mingled funds. This is our best fiscal year since our founding for both managed account and comingled fund gross the quarter, we generated nearly $7 billion of managed account AUM inflows and over $3 billion of comingled fund gross co-mingled fund additions included a $300 million final close on our growth equity fund and a $1.2 billion close in our real estate secondaries fund. We conducted a final close of approximately $200 million of our real estate secondaries fund after the quarter growth equity fund just finished over $700 million, similar in size to the prior fund, which is a great result in this challenging environment. This fund pursues founder-led businesses outside of the traditional venture capital ecosystem that exhibit rapid top-line growth, strong margins, capital efficiency, and minimal growth-oriented businesses have the potential to provide complementary exposure to both buyout and venture investments while generating liquidity that is not dependent on the IPO market or large-scale strategic M&A. Our real estate fund finished at over $3.75 billion, which is the largest real estate secondaries fund ever raised in the fund provides liquidity to asset owners during periods of market dislocation through GP-led secondaries and recapitalizations, a strategy pioneered by our team. Demand was very high with the fund significantly oversubscribed. We are well on our way to deploying this capital with $1.7 billion of investments already committed from the fund and related separately managed Real Estate Partners Fund is a classic example of how we deliver for our clients and shareholders across market to private wealth. We generated over $1.2 billion of subscriptions in our evergreen funds growing the platform to $8.2 billion as of the end of fiscal year. We achieved our highest inflows ever on the platform as well as at the individual fund level for SPRIM, SPRING, and return and diversification benefits of layering on private market exposure across asset classes are resonating strongly within the private wealth market. Reflecting on this fiscal year, our secondaries platform enjoyed record sizes for our venture capital, private equity and real estate funds as well as a successful debut offering in our infrastructure co-investment fund and continued momentum in private our co-mingled fund gross inflows exceeded $10 billion for the first time in our company's history, and we expect to remain very active in fiscal 2026. We are currently in market with our private equity co-investment fund, our multi-strategy Global Venture Capital Fund, our corporate direct lending fund, our opportunistic lending fund and our debut infrastructure secondaries fund. It is also worth noting that our private equity secondaries fund, which closed at $4.75 billion last September, is preparing to come back to market in the coming 9 shows our fee-earning AUM by structure and asset class. For the quarter, we grew fee earning assets by over $7 billion. Our undeployed fee earning capital or UFEC grew from about $22 billion last quarter to approximately $25 billion this quarter, driven by additions of managed accounts that pay on deployed capital. We feel great about this level of dry powder given the potential opportunity to capitalize on market combination of fee-earning assets plus UFEC grew to $146 billion which is up $10 million sequentially and is up nearly $30 billion or 25% from a year ago. This translates to a very healthy 19% organic growth rate since fiscal 10 shows our evolution of fee revenues. We generated a blended management fee rate of 65 basis points for the last fiscal year, higher than the 59 basis points from the prior fiscal year as we benefited from retroactive fees and a positive mix shift from a higher fee rate associated with our private wealth turning to slide 11. We I would like to highlight our progress relative to our 2023 Investor Day goals. You'll notice that this is essentially the same scorecard we presented at our fiscal year-end 2024 last call last May. In June of 2023, we set a goal to at least double our fee-related earnings over five years and to expand our FRE margin to the at our fiscal 2025 results, fee-related earnings has exactly doubled in nearly two years. We accomplished this by growing our fee earning AUM by over 40% and by expanding our FRE margin to over 40%.While we clearly benefited from favorable retroactive fees, our core margin, excluding retro fees was comfortably in the mid-30s. We still have some work to do to achieve our fee-related earnings goal, excluding retroactive fees, but at only two years into our five-year cycle, we are well ahead of we are achieving our targets while continuing to invest for growth and providing strong cash returns to our shareholders. As an investment and technology-enabled business, most of our investment is in human organization is over 1,100 professionals today, nearly 20% higher than at the end of fiscal 2023, including investments in private wealth, business development and data software and engineering. Three of our most important growth on our private wealth platform this past year has been nothing short of spectacular, with assets more than doubling, distribution growing by nearly 200 unique partners and improved profitability, contributing meaningfully to the firm's blended fee rate and FRE and technology are deeply entrenched in all that we do. It is embedded in our research and underwriting across primaries, co-investments and secondary investments. It is the engine behind cash flow pacing and valuation, which enables our private wealth platform. It is a critical value proposition in acquiring and retaining clients, and increasingly, we are leveraging our data and tech to highlight StepStone's brand. Recently, insights from SPI were featured in two prominent annual industry reports and we anticipate more opportunities to showcase our benchmarking and data sets in the years to passing the call to David, I would like to provide an update on our buy-in of the noncontrolling interests and on our capital distribution to shareholders. We expect to conduct the second tranche of our buy-in of the noncontrolling interest of the asset classes in the first quarter of fiscal 2026, utilizing $10 million of cash and $161 million of equity. This translates to 3.2 million issued shares effective as of April a reminder, the cost of each buy-in is hardwired based on StepStone's market multiple and the asset classes results. This year's buy-in will be executed on average at a greater than 15% discount to the STEP public PE view this as a very efficient use of capital as it provides positive earnings accretion with no integration or execution we are thrilled to announce that the Board has declared a $0.40 per share supplemental dividend, which is tied to our performance-related earnings. This is on top of the $0.24 base quarterly dividend. For the full year, we have declared $1.36 per share of dividends for our Class A common stock, up 37% over last year for believe this level of distribution represents a compelling value when contextualized with a 30% annual organic growth we have achieved in fee-related earnings over the last three years, while also considering cash usage for accretive NCI buy-in.I'll now turn the call over to David to speak to our financial highlights. David Park Thanks, Mike. Turning to slide 13. We earned fee revenues of $215 million, up 40% from the prior year quarter, -- the increase was driven by growth in fee earning AUM across commercial structures and a higher blended average fee also generated strong growth in advisory fees, some of which are project-based fees I won't necessarily recur Fee-related earnings were $94 million, up 85% from a year ago. FRE margin was 44% for the quarter, up more than 1,000 basis points versus the prior year for retroactive fees previously mentioned onetime advisory fees and the bonus accrual adjustment, core FRE margins were 37%, expanding nearly 600 basis points over the last year quarter. Our core operating margin has consistently risen since our IPO in 2020. The path forward for our margin may not be linear, but we believe that the long-term trajectory will move higher as we continue to generate operating at expenses, adjusted cash-based compensation was $86 million, flat to last quarter. The current quarter included a favorable adjustment to the bonus accrual, which offset the growth in head count. For the full year, our cash compensation represented 46% of fee-related revenues after adjusting for retroactive expect our fiscal 2026 cash compensation ratio to be around this level understanding there may be variability in any given quarter. As a reminder, our annual compensation cycle resets with our new fiscal year with increases having taken effect on April equity-based compensation was $2.9 million, up $1.2 million from last year's fiscal fourth quarter. We anticipate equity-based compensation to increase by about $1 million next quarter. Our long-term incentive plan generally vest over a four-year first fiscal quarter of 2026 were reflecting full four years' worth of equity-based compensation expense. General and administrative expenses were $32 million, up $2 million sequentially and up about $5 million from a year realized performance fees were $81 million for the quarter and $42 million net of related compensation expense, our best gross and net quarter quarter largely reflects the realization from the closings of previously announced deals. The pipeline for realization for the next quarter or two remains driven by deals announced in the last six months. Adjusted net income per share was $0.68, our highest quarterly result ever, up 106% from a year ago, driven by growth in fee revenues, FRE margin expansion and higher performance-related attributable to noncontrolling interest and profits interest was $33 million, up $21 million from a year ago, driven by key revenue growth in our infrastructure, real estate and private debt asset classes, realized performance fees, retroactive fees in real estate and growth in our private wealth management to key items on the balance sheet on slide 14. Net accrued carry finished the quarter at $738 million, down 1% from last quarter due to the strong level of realization in this period, but up 16% over the last 12 months. Our net accrued carry is relatively mature with 75% tied to programs that are older than five years, which means that these programs are ready to harvest. Our own investment portfolio ended the quarter at $276 concludes our prepared remarks. I'll now turn it back over to the operator to open the line for any questions. Operator Ken Worthington, JPMorgan. Kenneth Worthington Hi. Great. Good afternoon. Thanks for taking the question. Maybe first, David, I think you mentioned this one fast, so I apologize if I'm messing this up but there were some onetime fees in the quarter -- what were those onetime fees? How big were they?And I think you indicated, excluding the retro fees and the onetime fees, margins would have been 37%, again, assuming I heard all this correct. Is that right? Is it fair to expect that margins increased from that level as we look forward in fiscal year '26?Or is that the right level we should expect for next year, at least as of this point in time? David Park Yeah. Thanks, Ken, for the question. So the onetime fees were in our advisory fees. Our advisory fees typically include both recurring and nonrecurring fees. But this quarter included a somewhat larger onetime we thought it would be helpful to call out. It was about $4 million. On the cash comp, we did benefit from a favorable bonus accrual adjustment downward. Had we normalized the cash comp, it'd be roughly $89 million. So if you factor in both those, the FRE margin for the quarter would have been 37% versus the 40% just purely excluding retroactive if you look at our fiscal full year fiscal '25 margin, excluding retroactive fees, I was also about 37%. So I think that 37% margin is a fair expectation as a starting point. But as you know, from quarter to quarter, the margins are going to vary, particularly the next quarter our merit increases took effect April 1. So you should see a slight bump up in compensation as well as incremental hirings. Kenneth Worthington Okay. Excellent. That was super helpful. Okay. Maybe just secondly, of had a nice jump this quarter, 24.6% despite the $2 billion of suggests continued strong execution I guess the question here is how does the pipeline of new business not on book? So fundraising has been really on a tear this year. So you've won a lot of new business. More recently, the environment has seen some increasing volatility. I think there's some seasonality as how far out do you feel comfortable with visibility on the not pipeline -- and how does it look? Scott Hart And sorry, can I just care, did not want just clarify what you said there? Kenneth Worthington So UFEC is one, but it just hasn't converted to fee-paying AUM. So we know what that pipeline is, but what is the business that you're bidding for, but you haven't necessarily won on yet. Is your pipeline look better? Are you -- have you won so much? Is it depressed?How does the outlook look given what you've already done and then combine that with seasonality and market conditions, et cetera. Scott Hart Sure. Got it. Understood. Look, I will say that we are actually feeling fairly positive in terms of the pipeline of new opportunities, whether through RFPs that we are in the process of responding to. Whether it is newer pools of capital that are coming online and just allocating to the private markets for the first a reminder, we've talked about that in the past, tends to be groups that we're speaking to outside of the US for the most part. I have just come back from some recent trips where you're seeing even long-time investors in the private markets just start to set aside an allocation for things like private credit opportunities. And so I would say that we continue to be pleased with the amount of opportunity that lies ahead of the separate account side, look, we are obviously coming off a very strong fundraising year from a separate account standpoint, good mix of re-ups as well as new and expansion business as we highlighted in the prepared remarks, we probably don't have the same size of re-up opportunities coming, but still a very healthy re-up pipeline and expect to continue to execute on that at a very high re-up so overall feel fairly good about the pipeline. And then lastly, I would say just to loop in some of the commingled funds as well as part of the reason we wanted to highlight that certain of those funds may be coming back to market sooner than you expected. And the reminder there was really around private equity secondaries where we had started to actually invest that fund back in October 2022 when we activated given the fundraising environment, it took a bit longer to ultimately get to our final close, although that exceeded our target expectation. And here we are almost right on plan three years later planning for the next iteration. So again, good pipeline of opportunities that lie ahead. Kenneth Worthington Okay. Excellent. Thank you so much. Operator (Operator Instructions) Ben Budish, Barclays. Benjamin Budish Hi. Good evening and thank you for taking the question. Just following up on the fundraising side. We've been hearing from some of your peers that especially for larger flagship funds, there's likely to be more of a barbell shape with a big first close, a longer duration and a bigger final close. Curious if that resonates with what you're expecting for your funds in the market?And on the same topic, I was wondering if you could share any details just for the major flagships. Has anything been raised so far? Is there anything yet in fearing AUM? And how should we think about the near-term cadence of potential closes? Scott Hart Well, I think that description of the barbell with the strong first and strong final close is exactly what we have described as well. And exactly what you've seen in our two most recent flagship fundraise being private equity secondaries and real estate secondaries where we did indeed have a sizable first close there has been an extended period that we were fundraising before then having a very strong final I think part of that is just trying to create a sense of urgency and some momentum around clients who have a number of other opportunities on their plate given the crowded fundraising environment. But once you can confidently speak of wrapping up and having a final close, they are more willing, enable to act there. So I would agree with and tell you that we have experienced a similar phenomena in some of our recent terms of the flagship funds that are currently in market today, we've mentioned in the past that our private equity co-investment fund is back in market, have not had a first closing there yet. And we also have our multi-strategy global venture capital fund in market. As of the quarter end, that had not had a close, has had its initial closing subsequent to the March 31 quarter then have some of our other funds, including our first time infrastructure secondaries effort as well as our corporate direct lending and corporate opportunities funds in market. But no, nothing that would have immediately hit fee earning AUM based on recent closes there. Benjamin Budish Okay. Got it. Very helpful. And then maybe just on the same topic for the comingled funds. Just curious on the fee rate.I think a lot of us try to do strip out what we think your management fees are on the wealth vehicles, strip out the retroactive fees and we're left to like a core fee rate. It looks like that was quite a bit higher this quarter than some of the prior any details you can share there as well, like how should that trend over the year? Are we at a good run rate or any other dynamics with new funds turning on over the course of the next several quarters, we should be keeping in mind? David Park Hey, Ben, this is David. So you're right, commingle fund fee rates have trended up over time. This quarter was particularly strong. It was really driven by the retroactive fees from our real estate secondaries fund with a relatively large close this quarter. If you strip out the retroactive fees, it was about 94 basis points for the again, that is a little bit elevated, I think, because you have to factor in timing of the close. So if you look at our last 12 months and strip out the retroactive fees, which helps mute some of the timing elements, our metal fund ex-retro fee rate would be in the low 90s. Benjamin Budish Okay. Very helpful. Thanks so much. Operator Michael Cyprys, Morgan Stanley. Michael Cyprys Hi. Good afternoon. Thanks for taking the question. Maybe just start off on the secondaries marketplace. We've seen some headlines with some investors, endowments may be looking to sell private portfolios stakes while there are other LPs struggling with liquidity constraints in their private portfolio. So just curious how you see this all playing out across the marketplace. What role can StepStone play?And then just more broadly on the secondaries marketplace, I think you mentioned you raised the largest secondaries fund ever in the marketplace at just under $4 billion, but that's while successful, much smaller than what we're seeing in the private equity space with funds over $20 billion in curious how you see the path for real infrastructure and secondaries products to meaningfully scale to double-digit billions. What's that path look like? How do you see that playing out? Thank you. Scott Hart Yeah. Thanks, Mike. I mean certainly a topic that we've been talking about really over the last couple of years, but agree that given the likely delay and some realizations as well as some either specific or the whole category specific challenges, like you mentioned, with the endowments, do expect to see increased selling in the secondaries market.I mean, the role for us to play there is that we are an active fire and participant really across the entirety of the private markets not only including the fund that we talked about on this call in real estate, private equity secondaries, venture secondaries, infrastructure, but even on the private credit side, as so you can imagine, we are actively evaluating opportunities in this market. And look, I don't think that the likely selling will be limited to, obviously, the endowment. I think there are a number of groups that have been expecting this year to be an important one in terms of distributions and certainly saw from our numbers that, that started to pick up with a number of announced transactions in the calendar Q4 of '24 and calendar Q1 of '25 that led us to have really a record carry quarter this quarter, but now clearly expect that to slow down a bit just given bid-spread and likely delay in deals given the uncertainty in the on the real estate side, as a reminder, that fund is really almost entirely GP-led secondaries fund. And part of what drove the growth in the fund size there is that we think it is particularly well suited for the current environment. What we've seen much less of in the real estate market is a real pickup on the LP secondary side of things, where we today are active through separately managed accounts, but don't have a commingled there, we've seen much less activity. And so I think until that picks up, unlikely to see the real estate secondaries fund scale dramatically or anywhere in line with what you mentioned on the private equity side. Michael Cyprys Great. And then just a follow-up question on the private wealth side. you guys have had a lot of success over $8 billion in private wealth assets. I was just hoping you could maybe speak to how you see your product platform evolving as you look out over the next five years when you look at the offering today, you have a number of different strategies and a bunch of different asset do you see opportunities to fill in and if you were to think about, say, the next $10 billion that you might raise in the coming years from the private wealth space, broadly speaking, how much of that might you anticipate from overseas versus domestic versus from newer products versus scaling existing? How do you see that cadence of that expanding from here? Jason Ment Thanks, Mike, Jason here. Well, at $1.2 billion a quarter, hopefully, billion won't take us too long as we continue to scale. The US market continues to be a strong one for us and the European market continues to be a lot of white space as we continue to build out a sales force as well as syndicate partners there and spending a lot of time and attention there to help grow that as a percentage of the overall fund terms of the strategies that we bring to bear, we've talked often about the 12 boxes that we have in the toolkit across primary secondaries and co-investments across private equity, real estate, infrastructure and private are obviously different flavors within each of these asset classes in terms of asset type and strategies. And so we could see as the private market becomes a bigger allocation within the individual investors' wallet that you see some degree of specialization. But we're going to have to do this on an iterative basis, right?As the allocation goes up, the individual investor will look for more opportunities to specialize their exposures and then we can create product to address that. And I think you see that. If you look back in 20, 30, 40 years of history in the institutional market that the number of strategies and the types of strategies and the tapestry of available opportunity in the private markets has greatly developed as it became a larger part of the institutional wallet share. So yes, there will be opportunities to infill but probably really only has the individual investor expands their wallet share in private markets. Michael Cyprys Great. Thank you. Operator Chris Kotowski, Oppenheimer. Christoph Kotowski Yeah. Good afternoon. Thank you. Michael stole my question, so I'm down to just a narrow modeling question. And that's on the NCI buyout, you said it was $10 million of cash, and then I missed the amount of stock, and I'm just curious about how to model that? Is it -- how many shares were issued and is it in for the full quarter? And is there a percentage we should be thinking about on an ongoing basis of what percentage of the core FRE still accrues to the noncontrolling interest? Michael Mccabe Well, Chris, it's Mike. I mentioned that I repeat, there were simulate cash, but we also issued $161 million of equity. So that was 3.2 million issued shares. But David, if you want to expand a little bit on the -- David Park Yeah, Chris. So if you think about the buying, it's hardwired, it's payable. The consideration is payable in cash up to 20%. The election of how much cash we pay is -- it depends on the selling shareholders what they elect. So from year to year, then the amount of cash can vary -- the number of shares, right, will be a function of whatever our trading multiple is so you can make your assumptions in no case will the amount of cash exceed 20% of the consideration. And as you think about the NCI, with each buy-in, the shares are effective for as of April 1 for the entire fiscal quarter fiscal year. And as each buy-in occurs, right, you're going to see a more tapering off or plateauing of the NGI trajectory ultimately flattening out and then starting to decline over the last maybe four or five years. Christoph Kotowski Yeah. I was just trying to think about the incremental step of fiscal '25 to fiscal '26. And I mean it should be a couple of percentage points, right? David Park Yeah, you can assume it's low single-digits. Christoph Kotowski Yeah. Okay. Alrighty. Thank you. That's it for me. Operator Alex Blostein, Goldman Sachs. Hey, guys. This is Michael on for Alex. So you guys spoke to 500 unique distribution platforms for your retail products today versus, I think, 300 a year ago. Can you maybe walk through which channels are generating the most onboarding demand today versus how that's been historically? And maybe how competition in those specific channels has evolved given a bunch of new entrants in the space. Jason Ment Thanks, Michael. Jason here. I think our allocation amongst the different channels is actually fairly consistent period over period. -- and see just over one-third of the US distribution through the wires, just over one-third through the RIAs and the balance through the broker-dealer and direct relationship distribution. So I think that's been broadly terms of the competitive landscape. There are obviously many more funds in the Evergreen semi-liquid space today than there were a year ago. and they come in a variety of flavors, both direct GPs as well as other solutions providers and in different asset classes. And while that landscape has become more crowded, the individual investor is becoming more interested in private markets. And so it is a growing despite that competition, we've posted a couple of quarters in a row of best quarters ever. Yes. Maybe a follow-up on the ticker feature. You guys were relatively early with that. But again, on the same theme, a bunch of the new product launches have been interval funds, which come with a similar ticker feature for new investors and subscribers. Has that played in?I know you guys mentioned 80% of flows coming via ticker. But as new product launches do you have a similar dynamic, is that impacting any of the fundraising that you're seeing? And do you expect that to change going forward? Jason Ment We have not seen any negative impact from other products coming on and don't see that we should anticipate that on a go-forward basis. Our products -- each of the four fund families are differentiated from what is out there today SPRIM is an all private markets fund, so really a one-ticket solution with a model portfolio for private markets with a in the venture growth space is really an end of one in terms of what it offers to the individual investor struck in the multi-manager infrastructure is really a novel offering and the Credex fund combining multi-manager exposure to both direct lending and specialty credit we've tried to structure these products with the end user in mind based on feedback from the channel and trying to offer something that actually is differentiated. So yes, while it's a competitive landscape, these are just more folks that are out there educating the individual investor on the benefits of private markets, and so far, it's accrued to our benefit. Thank you. Operator Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Scott for any further remarks. Scott Hart Great. Well, thanks, everyone, for your time and interest in the StepStone story today. Obviously, hopefully, you sensed how excited we are about the most recent quarter here and what lies ahead. So with that, thank you, and we look forward to updating you again next quarter. Operator Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day. Sign in to access your portfolio
Yahoo
23-05-2025
- Yahoo
StepStone Group Inc (STEP) Q4 2025 Earnings Call Highlights: Record Fee-Related Earnings and ...
GAAP Net Loss: $18.5 million or $0.24 per share. Fee-Related Earnings (FRE): $94.1 million, up 85% from the prior year quarter. FRE Margin: 44% for the quarter. Retroactive Fees Contribution: $15.7 million to fee revenues. Adjusted Net Income: $80.6 million or $0.68 per share, up from $37.7 million or $0.33 per share in the prior year quarter. Dividends: Base quarterly dividend of $0.24 and a supplemental dividend of $0.40, totaling $1.36 for the fiscal year. Assets Under Management (AUM) Raised: Over $31 billion for the fiscal year. Fee-Earning AUM Growth: $27.5 billion, representing a 29% growth rate. Total Gross Inflows: $9.9 billion for the quarter. Fee-Earning Assets Under Management: Over $121 billion, up $7.2 billion from the previous quarter. Blended Management Fee Rate: 65 basis points for the fiscal year. Adjusted Cash-Based Compensation: $86 million for the quarter. Gross Realized Performance Fees: $81 million for the quarter. Net Accrued Carry: $738 million, down 1% from last quarter but up 16% over the last 12 months. Warning! GuruFocus has detected 6 Warning Signs with STEP. Release Date: May 22, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. StepStone Group Inc (NASDAQ:STEP) reported record earnings for the quarter, with fee-related earnings reaching $94.1 million, an 85% increase from the prior year. The company achieved a fee-earning asset growth of over 29% in fiscal 2025, marking its best organic growth rate since becoming a public company. StepStone Group Inc (NASDAQ:STEP) declared a base quarterly dividend of $0.24 and a supplemental dividend of $0.40, with the total dividend payout for the fiscal year increasing to $1.36 from $0.99 last year. The private wealth platform saw outstanding growth, with assets increasing from $3.4 billion to over $8 billion, driven by new products and expanded distribution. The company successfully closed on three comingled funds of over $3 billion each, contributing to a remarkable year for fundraising. StepStone Group Inc (NASDAQ:STEP) reported a GAAP net loss of $18.5 million or $0.24 per share for the quarter. The company noted that the capital market backdrop shifted in April, creating volatility and widening spreads in the private markets. There is a focus on scenario planning due to the uncertain environment, which may impact future investment decisions. The company faces competition in the private wealth space, with many new entrants offering similar products. The realization and distribution pipeline may slow down due to market uncertainty and bid-spread issues. Q: Can you elaborate on the onetime fees in the quarter and the expected margin levels for fiscal year '26? A: (David Park, CFO) The onetime fees were in our advisory fees, amounting to about $4 million. Excluding retroactive and onetime fees, the FRE margin would have been 37% for the quarter. This margin is a fair starting point for fiscal '26, though it may vary due to compensation increases and hirings. Q: How does the pipeline of new business look, considering recent fundraising success and market volatility? A: (Scott Hart, CEO) We feel positive about new opportunities, including RFPs and new capital allocations, especially outside the US. Despite a strong fundraising year, we expect a healthy re-up pipeline and are optimistic about upcoming opportunities, including commingled funds returning to market. Q: Is there a trend towards a barbell shape in fundraising for larger flagship funds? A: (Scott Hart, CEO) Yes, we've seen a strong first and final close with an extended fundraising period in between, as observed in our recent private equity and real estate secondaries fundraises. This approach helps create urgency and momentum among clients. Q: How do you see the secondaries marketplace evolving, and what role can StepStone play? A: (Scott Hart, CEO) We expect increased selling in the secondaries market due to delayed realizations and liquidity constraints. StepStone is an active participant across private markets, evaluating opportunities in real estate, private equity, venture, infrastructure, and private credit secondaries. Q: How do you see your private wealth product platform evolving over the next five years? A: (Jason Ment, President, Co-COO) We expect continued growth in the US and European markets, with potential specialization as private market allocations increase. Our diverse strategies across asset classes will evolve iteratively as individual investor demand grows. Q: Can you provide details on the NCI buyout and its impact on financials? A: (David Park, CFO) The buyout involved $10 million in cash and $161 million in equity, translating to 3.2 million shares. The NCI trajectory will plateau and eventually decline over the next four to five years, with a low single-digit impact from fiscal '25 to '26. Q: How has competition in distribution channels for retail products evolved? A: (Jason Ment, President, Co-COO) Our distribution remains consistent across wires, RIAs, and broker-dealers. Despite increased competition, the growing interest in private markets has led to record quarters for us, with our differentiated products continuing to attract investors. Q: How does the ticker feature impact fundraising, given new entrants in the space? A: (Jason Ment, President, Co-COO) We haven't seen negative impacts from new products. Our differentiated offerings, like SPRIM and SPRING, cater to specific investor needs, and the growing interest in private markets has benefited us despite increased competition. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus.
Los Angeles Times
19-05-2025
- Los Angeles Times
Steve de Pew, Mal Serure and Kevin Sher Describe the Way Forward for SoCal Commercial Real Estate
The Southern California Commercial Real Estate Trends Roundtable is produced by the LA Times Studios team in conjunction with Greenberg Glusker LLP; McDermott Will & Emery; and SMBC MANUBANK. Over the last few years, in the wake of a series of unanticipated challenges ranging from unprecedented wildfires, a global pandemic, supply chain issues and new workplace trends, commercial real estate companies have had to get creative. The lingering elements of change and management of new protocols have continued to force the industry companies to assess and, in many cases, make permanent changes to their operations and how they approach relationships with partners, customers and employees. As we move into the second half of 2025 and as things return to a new form of normal, questions still linger. What changes and trends are here to stay for the long term? What legal, insurance and financial issues need to be addressed? What new roles is technology playing? What will the CRE industry look like a year from now? We turned to three uniquely knowledgeable experts for their thoughts and insights about what's next for Southern California's resilient commercial real estate sector. Q: How would you describe the overall outlook for Southern California CRE as we head deeper into 2025? Mal Serure, Partner, McDermott Will & Emery: It's not easy to pin down a short-term outlook these days. At the end of 2024, I felt optimistic that the commercial real estate market had hit its bottom and 2025 would start with a surge of transactions. Following the devastating wildfires in the Palisades and Altadena and continuing financial challenges and uncertainty surrounding tariffs and international trade, it feels like that momentum has slowed. While challenges persist this year, I'm always bullish on Southern California's longer-term outlook. Los Angeles remains an incredible place to live, work and visit. Entertainment, aerospace and logistics continue to drive growth. Plus, our city continues to find ways to reinvent itself. We'll see World Cup games at SoFi Stadium next year and the Olympics two years later – all exciting developments that will continue to fuel business, demand for housing and hotel rooms, and the commercial real estate market. Q: With the new administration, do you think market conditions are likely to worsen, improve or stay the same? Steve de Pew, Senior Executive Vice President/Group Head - Commercial Real Estate Finance, SMBC MANUBANK: The new administration has moved quickly to implement some of its priorities – tariffs, immigration policies and DOGE – all at once, which has created uncertainties. In the near term, higher import tariffs could mean rising costs, which could add pressure for the Fed to consider rate cuts; this would be beneficial for construction. If the international negotiation is successful, U.S. manufacturers could benefit from lower export tariffs, while logistics and supply chains could remain unpredictable until we see more consistent rules. Changes to immigration enforcement could tighten the labor pool. I'm looking for things to become clearer in the next three to six months, as outcomes from the negotiations are known. Overall, in the immediate term, we can expect continued uncertainty, and a lot will hinge on how quickly policy details settle out. Kevin Sher, Partner, Real Estate, Greenberg Glusker LLP: I represent some commercial retailers who have had to retool 2025 budget forecasts, pause growth plans for new store locations and reassess existing vendor contracts rapidly this first quarter, all due to the uncertainty created by the tariffs under the current administration. A few are waiting to reassess strategic plans until this summer when President Trump's 90-day pause on higher-band tariffs for most countries, other than China, is set to expire. Even if tariffs are rolled back or trade deals are reached at the end of such 90-day period, 2025 may, at best, be a reset year for the retailers and, at worst, be a year of declining growth and decreased revenue, in a retail sector that around Los Angeles had been showing signs of life again after the challenges of the pandemic. Q: What effects have the recent devastating wildfires had on the commercial market? Serure: The wildfires have further stressed an already undersupplied housing market. California sets regional housing allocations for each jurisdiction to meet housing and affordability needs over a set cycle. As of late 2023, about a third of the way through its current cycle, Los Angeles County had only met 10% of its required units. The loss of approximately 16,000 homes and structures in the Palisades and Altadena has made the housing shortage more dire. The hope is that the city will streamline and support the development process, so we can rebuild these communities and tackle the broader housing supply issue. The wildfires have also led to higher insurance premiums and reduced availability, impacting not only homeowners in fire-prone areas but also those in the broader region as insurers raise rates or consider exiting the market. I also expect stricter wildfire mitigation requirements for development in Los Angeles. Sher: Commercial developers in Los Angeles County have already started experiencing extended delay periods for activating electricity in otherwise completed projects. With the rebuilding efforts in Palisades and Eaton still in nascent stages, the required future marshalling of resources in local planning and building departments and utility companies (such as LADWP and SoCal Edison) for rebuilding these areas will likely result in further project delays for new development across the County, in addition to possible construction labor shortages and rising construction costs based on increased demand. When you add tariff-related cost increases into the mix, it may soon be a very costly and lengthy process to build (or rebuild) anywhere in and around Los Angeles County. Q: Which commercial sectors (office, retail, industrial, multifamily, hospitality) are performing strongest, and which are facing the biggest challenges? de Pew: Retail still seems to be a gem hiding in plain sight and has become a bright spot, particularly in Southern California, with continuing healthy leasing demand and steady rent growth. Institutional office buildings in downtown markets continue to struggle. Hybrid and remote work are deeply rooted, and vacancy will remain stubborn without a broad return to in-person operations. However, suburban office space in close proximity to executive housing seems to be another bright spot. Industrial, once the standout, is feeling the impact of recent delivery spikes, policy changes and supply chain slowdowns. Thus, growth has noticeably slowed. Multifamily continues to perform as limited housing supply (at the local and national level) keeps demand and rents relatively strong, although delivery spikes have temporarily increased vacancy. Hospitality markets are mixed – my question is: how will international travel to the U.S. hold up in the current global climate? Q: How are landlords and developers adapting office properties to attract tenants in a post-pandemic landscape? Sher: When you combine Class A office buildings, amenities like gyms and dog-friendly spaces and dynamic walkable areas with high-end retail and residential in close proximity, then you have a great recipe for attracting office tenants. That is why places like Century City, Culver City and Playa Vista have extremely low office vacancy rates. Companies now understand, more than ever, the value of bringing employees back into the office for collaboration, training and morale. However, some are seeking co-working spaces or smaller office footprints in these activated office markets. One sign of the times in my practice has been my increasingly frequent negotiation of dog-friendly lease riders for my landlord clients as an incentive for office tenants and their employees. Serure: Office landlords are making spaces more adaptable (often with smaller floorplates) to attract tenants who are looking for flexible workspaces for their hybrid schedules. Tenants also want amenities that will draw their employees back to the office, and many landlords are building full amenity floors or common spaces with gyms, conference centers, tenant lounges, and food and beverage options. These shared spaces make the tenant's space more productive, moving these services to a common space and relieving pressure on the tenant's space. Owners of office properties are also looking to take advantage of the city's support for adaptive reuse of older properties by converting office buildings to residential use. Q: Are we seeing a continued slowdown or some growth in industrial development, particularly in areas like the Inland Empire? Sher: In 2024, the Inland Empire added over 20 million square feet of new industrial space, exceeding post-pandemic demand in the market and increasing vacancy rates. Development has therefore decreased, and there is presently a 10-year low in new industrial construction levels. Recent changes in state law may further decrease industrial development. On January 1, 2026, California Assembly Bill No. 98 goes into effect, regulating new warehouse construction and operations for industrial properties that are 250,000 square feet or larger. With the required buffer zones and setbacks from residential areas under the new law and the restrictions on truck routing, finding compliant locations for warehouse development in the Inland Empire and across many parts of California will become more challenging. de Pew: A couple of years back, the Inland Empire industrial market was simply 'white hot' with vacancies near zero in the strongest markets, which spurred new development. Now, vacancy rates are pushing into the higher single digits as a wave of new building deliveries has overtaken demand, compounded by uncertainty around tariffs and trade policy. Many developers are taking a wait-and-see approach; permit-ready sites are on pause until there's more clarity in the market. The pace has shifted from aggressive growth to a measured, cautious stance as capital sources and developers both look for clear signals before making new commitments. Q: Southern California has been a hotspot for industrial and logistics real estate. How are supply chain shifts and e-commerce trends affecting industrial demand? Serure: The ongoing tariff dispute between the United States and China should have an immediate short-term effect on industrial demand. U.S. companies are already signaling that they will slow their importing to see how the global situation shakes out, which will likely reduce leasing and transactions in the industrial sector. Still, the fundamentals that have made our region a crucial industrial hub – proximity to Asia, key ports in Los Angeles and Long Beach, a large regional population, and its location as an export and distribution hub for the state's rich agriculture – continue to support its importance. Once China and the U.S. agree on a trade agreement or their trade policies otherwise stabilize, I expect industrial demand to continue to grow. The question is how long that will take. Q: What financing challenges and opportunities are developers facing in the current market? de Pew: Although project finance has become more selective, banks are actively competing over the strongest new construction deals in order to replace repayments from the recent construction cycle. In just the past two to three months, banks are now offering more favorable loan terms, thinner spreads and higher loan advance amounts, especially for well-located assets, while others are holding larger positions in syndicated credits. There's capital out there for the right projects, but deals with weaker fundamentals are still facing real challenges. To secure financing now, developers need a strong business plan, proven performance in the local market, readily validated underwriting assumptions, and a thoughtful exit strategy. Without these elements, securing debt or equity will be an uphill battle. Q: What impact is the rise of adaptive reuse and live-work-play environments having on commercial real estate? Serure: The rise of adaptive reuse and live-work-play environments is impacting commercial real estate in Southern California, reshaping use, development and value. Adaptive reuse involves converting underutilized properties into residential and mixed-use spaces, often revitalizing neighborhoods. Many projects seek to create 'live-work-play' spaces (i.e., mixed-use projects where people can live, work, dine, caffeinate and socialize, reducing commutes and providing convenience and a more balanced lifestyle), which also presents additional benefits when it comes to promoting sustainability. Los Angeles is updating its Adaptive Reuse Ordinance to support these projects, addressing the city's need for housing while repurposing existing spaces. With growing demand and city support, these projects present significant opportunities for real estate developers and owners in our region. Q: What role is public policy, zoning changes and local government playing in shaping the future of commercial real estate in Los Angeles? Sher: Industrial real estate is being shaped by the affordable housing crisis in the City of Los Angeles and surrounding areas. The State of California, from a public policy standpoint, adopted quotas for locating additional residential units in each jurisdiction's Housing Element; however, in many cases, it is not practical to find additional suitable areas for affordable housing development within a city's limits. Since voters in single-family residential areas loathe to permit more density in their neighborhoods, cities have taken to re-zoning industrial areas through changes to their General Plan. Because rezoning an updated General Plan can be accomplished by publication without direct notice to affected industrial property owners, we have had clients discover after passage of a new General Plan that their properties have been rezoned for theoretical housing use. Their current uses are now, or will soon be, legally non-conforming. Q: What are the biggest hurdles preventing buyers and sellers from consummating deals? Serure: Uncertainty. We can't seem to get away from it. Over the last few years, we've grappled with questions about interest rates, property values and the future of office spaces and hybrid work schedules. As our industry adapts to these risks, we now face new uncertainty around international trade and its impact on the global and local economy, as well as the devastating aftermath of the wildfires. The industry mantra 'stay alive 'til 2025' has shifted to 'stay alive through 2025,' with a touch of dark humor. Here's to getting busier with transactions and, hopefully, no more need for inspirational industry mantras! Q: How do we solve the unintended consequences of Measure ULA on real estate development in the city of Los Angeles? Sher: The UCLA Lewis Center for Regional Policy Studies recently published a report entitled the 'Unintended Consequences of Measure ULA,' providing evidence that Measure ULA, while billed as a 'Mansion Tax' and raising tax revenue for affordable housing, is also frustrating commercial, industrial and multifamily development and drastically reducing transaction volumes in the city of Los Angeles. Less development and lower sales volume paradoxically mean that fewer new affordable housing units are likely to be constructed, and less money will be raised, frustrating the core purpose of Measure ULA. Because Measure ULA included limits on the City Council's power to amend it, we need either action by the State or a new City ballot measure to address needed reforms, such as exempting commercial properties or not applying the tax to properties that have been recently reassessed for property tax purposes (since such properties are already contributing to local coffers with taxes based on market value). Q: Is any relief on the horizon regarding material availability and labor supply challenges facing the construction industry? de Pew: There isn't much immediate relief on construction materials or labor. Tariffs could keep costs on imported materials high (for instance, appliances for apartment construction), and those pressures could remain for at least the next several calendar quarters. As the recent delivery spikes get absorbed and with fewer project starts kicking off, subcontractors on new projects may become more competitive, with labor pricing then becoming a bit more favorable. Further, we are seeing some of our institutional developers budgeting 2% to 3% tariff contingencies and locking in guaranteed maximum price contracts to hedge their risks. Still, there is ongoing concern that further tariff shocks could lead to subs trying to invoke force majeure clauses. The environment remains challenging, with careful planning needed to control costs and timelines.
