StepStone’s Brem bound for Beijing
Monte Brem, founding CEO of advisory firm StepStone Group, is looking to roll out what he says is the hitherto imperfectly represented discretionary/advisory approach for asset allocation and LP support in Asia Pacific.
He is also making a major personal commitment to the region unusual in such a business, by relocating to Beijing to lead the firm’s new office there – its first outside the US. This comes along with an even more personal commitment – his fast-approaching marriage to Li Yingru, an alum of CalPERS and Director at the private equity program of the China Investment Corporation (CIC).
Investing with discretion
Brem launched StepStone in 2007 to focus above all on customized separate account asset management services for major institutional investors. As former President at Pacific Corporate Group (PCG), the $15 billion private equity management business known for its strong discretionary and advisory services, Brem has perpetuated the same separate account and customized service approach within StepStone. “It is a mix of advisory and discretionary business,” he told AVCJ. “We invest about $4 billion a year.”
This approach concentrates on tailoring portfolios and separate accounts for large institutional clients who want to have a more individual customized solution – and more direct access to underlying GPs – than a traditional funds aggregation approach is able to deliver, but do not want the administrative overhead and other burdens of actually managing the accounts. “They want to have a customized portfolio, but they don’t really want to manage the administration,” said Brem. “Separate accounts come in all different structures, and there’s a lot of different ways you can structure discretionary or non-discretionary.”
Joined at StepStone by a cadre of other former PCG senior investors, Brem was able to pick up some important non-Western clients in its first years of operation, CIC being one. StepStone currently works with AMP Capital Investors in Australia and the Kuwait Investment Authority, as well as a number of major US pension funds.
Attractions of Asia
StepStone, partly thanks to its debut international clients, began with a strong international tilt that it is maintaining. “One of the things we always focused on is that we want to be a truly international business,” said Brem.
StepStone has a nominal target of around 50:50 North American and international business. Currently, the firm is headquartered in La Jolla, CA, with another office in New York. The Beijing office is listed as “coming soon” on the company’s website.
“We wanted to over time have Asia move towards an equal balance between our Asian and US business,” said Brem. “That’s led me to relocate here … We decided we were going to put senior people in the markets that we grew.”
Although StepStone will be looking at all potential aspects of business development as it rolls out in the region, “the bigger opportunity in the short term is investing money into Asia for [Western] institutions,” Brem believes. “The Asian institutional market is still developing.”
Asia still lacks the very broad and deep institutional LP investor base found in North America, and to a lesser extent in Europe, according to Brem. “Pension funds and funds other than SWFs haven’t really been built out yet. Most of them don’t even have approvals to invest in the kind of things that we do,” he told AVCJ. “The LP market in Asia is still pretty nascent. You just have to be patient. I think it’ll develop into a similar structure you see in the US, Europe or Australia, but it’ll take time.”
As it evolves, though, Brem sees it gravitating towards parallel managed account services. “The growth in demand is going to come from that kind of account.”
Despite the relatively shallow client base to date, Brem sees strong potential for supporting Asian LPs. “A lot of LPs in Asia think they can do it themselves,” he cautioned. “A lot of US LPs used to think that, and then they got burned.” But even when serving experienced Western clients, local knowledge is a significant value-add.
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