Five Questions With Monte Brem, Partner and CEO, StepStone

1. Your firm just agreed to buy Parish Capital, an asset manager that focuses on investing in top-performing small private equity funds. Besides boosting your assets by $2 billion to around $10 billion, what was the motivation for buying the firm?

Two things really. One is that for the past 12 months, we’ve had a goal of enhancing our resources and capabilities in Europe, and Parish has a fantastic team in Europe. I’ve known (Parish’s managing partner) David Jeffrey for many years, and David was the person we wanted to head our European office. The second thing is that since we founded StepStone, one area we’ve focused on is small-market and niche funds, which is obviously an area Parish specializes in. A lot of larger pension funds we work with have a hard time accessing this part of the market, so we needed a different channel to invest in smaller funds. Parish is a great way for us to enhance our capabilities at the small-end of the market.

2. Parish’s business is split between co-mingled funds of funds and managed accounts. Will StepStone continue doing both things?

StepStone’s model is more focused on customized, separate-accounts. So, it’s likely we’ll do something more customized, managed-accounts oriented. One of the challenges that many LPs have is that they don’t have big enough allocations to the small end of the market to support a managed account. What we would likely do, and this is not that different from what Parish does, is put together club vehicles rather than widely distributed co-mingled funds of funds. Parish has 40 investors in six funds, which is not a huge number. What they did was to club together groups of LPs, aggregating them so that they could access this part of the market in a more tailored, structured way. That’s likely what we will do. And at this point, we don’t have any plans to start fundraising for a successor, co-mingled, fund of funds.

3. Parish Capital is based in North Carolina, and StepStone is based in New York and San Diego. What will happen to Parish’s North Carolina offices?

Over time, we’ll consolidate that team into our New York and San Diego offices, depending on where people prefer to work, but ultimately, it’s important for StepStone to maintain its office configuration because culture is really important to our firm. You really need to have people together to maintain that culture. Of course, we also have offices in London and Beijing, so obviously, we have a global presence, but we try to minimize the number of offices so that our people can develop a common culture and approach.

4. In the last two years, StepStone has bought SilverBrook Private Equity and Citigroup Private Equity. What’s next?

Well, the only reason we are doing these deals is because they really enhance our capabilities in areas that are important to our business. So, SilverBrook enhanced our secondary and co-investment capabilities and Citi enhanced our co-investment and back office capabilities. For the future, however, I don’t see any areas where we really need to enhance our capabilities. We will be more organic in how we grow for the foreseeable future.

5. You’ve obviously been keen to grow your managed funds area, but StepStone is mostly known as a private equity advisor to big institutional investors. Does StepStone’s growth in managed funds mean it plans to focus less on its advisory business?

Not at all. We’ve concluded that the best model for doing advisory work and managed accounts is a combined model. The main reason for this is that private equity is a really complicated asset class. There is no other asset class where the difference between top quartile and bottom quartile is as large as it is in private equity, so you really have to know what you’re doing. You can’t have the appropriate level of talent, or do the kind of analysis that we do, with a pure advisory model. You have to have a hybrid model. Obviously (with asset management), it’s nice to make more money, but ultimately you also have to think about the LPs and what’s best for them. And it is our strong belief is that a hybrid model is best for LPs too.

Edited for clarity.