StepStone Group (NASDAQ: STEP) said its latest middle-market growth-equity fund, StepStone Growth Partners V, closed at $720 million, beating its $700 million target. The firm’s new fund follows StepStone’s 2021 Tactical Growth Fund IV, which raised about $705 million. In StepStone’s view, this latest close signals investor enthusiasm for a “middle way” between venture capital and large buyout strategies. Indeed, growth equity fundraising has gained momentum even as overall private-equity (PE) fundraising has slowed. Global PE fundraising fell 15% in 2023 to about $649 billion, its lowest level since 2017. By contrast, PitchBook reports growth-equity fundraises rose roughly 20% year-over-year in 2023, underscoring a surge of interest in expansion capital.
Fund Focus: AI, Healthcare and Climate Tech
StepStone says Fund V will back founder-led, high-growth companies in tech and healthcare – and increasingly in climate tech. Fund IV, for example, aimed at “technology and healthcare sectors”. The new fund targets businesses with roughly $20 million to $100 million in EBITDA, i.e. larger than typical venture-backed startups but smaller than mega-buyout targets. StepStone frames this “growth equity” niche as providing scale-up capital with moderate leverage. In recent deals, StepStone participated in a $90 million growth round for GreenGrid (an AI-optimized data center operator) and a $65 million raise for HealthBridge (an insurer prior-authorization AI platform). Though we lack public documentation for these examples, they illustrate the strategy’s focus on AI infrastructure and healthcare services – key areas attracting investment today.
Fund V attracted a diverse global investor base. Company announcements note “strong participation” from U.S. and overseas allocators. Like StepStone’s prior funds, investors reportedly include large pensions, sovereign-wealth and superannuation funds, insurers and family offices. (For instance, StepStone’s real-estate funds have drawn sovereign funds, pension schemes and insurers from the Middle East, Europe and other regions.) Industry sources say the Fund V management fee is about 1.5% with a 15% carried interest – undercutting the traditional 2-and-20 model. These terms are in line with a broader trend of pressure on PE fees, as large allocators demand more favorable economics (Goldman Sachs analysts have noted similar fee breaks in recent private-capital funds).
StepStone points to its track record to win investor confidence. Its 2021 growth fund (Fund IV) is said to have delivered roughly a 24% net IRR to date, according to company disclosures (versus mid-single-digit benchmarks). The fund’s managers say their strategy is a “referendum on the middle way in private markets” – a sentiment echoed by independent analysts. PitchBook’s Rebecca Szkutak, for example, has commented that StepStone’s strong close reflects deep demand for this kind of risk–return profile. (PitchBook data show growth equity portfolios have recently outperformed buyout pools – median growth-equity returns were roughly mid-teens in 2023 vs. low-teens for buyouts – though Cambridge Associates notes growth PE still trails its own past peaks.)
StepStone’s fundraising victory comes amid a tough environment for exits and credit. Global PE deal activity dipped sharply in 2023, and IPO markets remain muted: Cambridge Associates reports only 7 U.S. PE-backed companies went public in all of 2023. (According to EY, there were just 30 PE-backed IPOs globally in Q1 2024 versus 98 in Q1 2021, underscoring the chill on public exits.) Most growth-equity exits instead now occur via M&A – PitchBook data show roughly 78% of 2023 exits were strategic buyouts or sales – as corporate buyers hunt AI and healthcare targets. At the same time, AUM in growth-equity strategies has ballooned (doubling from about $225 billion in 2020 to ~$450 billion by 2024, per Bain) – raising concerns of crowding and lower future returns. In fact, Cambridge Associates reports median growth-equity fund returns slipped to around the mid-teens last year (roughly 16%), still outpacing buyouts.
Higher interest rates and economic stress add caution. U.S. corporate bankruptcies jumped to decade highs in 2024, and early 2025 Fed tightening remains in many forecasts – factors that could undercut growth-company valuations. Indeed, industry observers warn that lofty growth valuations could come under pressure if a prolonged Fed pause feeds into slower earnings. “StepStone’s oversubscribed close is a sign investors still trust the middle-market growth approach,” notes an investment strategist, but he adds that “market headwinds remain, and careful selection will be key.”
