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Monte Brem: Outlook for 2008

Gatekeeper StepStone's founder foresees a return to basics, as leverage becomes less important to a deal's success, and an opportunity to profit from uncertainty.

Monte Brem

“StepStone believes that 2008 will be a year of transition in private equity, when firms will need to reacquaint themselves with how to make money beyond the aggressive use of leverage and perpetually growing earnings multiples. A year when the newly minted public private equity firms, and the markets themselves, will need to determine whether private equity firms made a mistake by going against their own advice about the advantages of being private.

Historically, private equity firms have produced exceptional returns during periods of uncertainty, and this certainly is the condition in which we find ourselves as we enter 2008. The real question for 2008 will be whether so much capital has flowed into the large end of the market that it has eliminated the arbitrage opportunity that occurs during these periods of uncertainty (relative to short-term and long-term valuation expectations).

StepStone will not stop investing in these highly talented mega funds altogether, but we will do so cautiously and with a selective approach based on their commitment to generating returns through operational improvements.

Beyond the large end of the market, in 2008 StepStone will have a particular focus on small funds with specialised strategies and increasing our portfolio’s allocations to select international markets we find attractive, with a tilt toward Asia.”

Monte Brem, founding partner, StepStone

Last year was a year of firsts for California-based StepStone, which focusses on separate, single LP accounts. The advisory group was founded in May by three former executives of crosstown gatekeeper Pacific Corporate Group: Brem, PCG’s former president, Thomas Keck, previously PCG’s chief investment officer and Jose Fernandez, a former PCG managing director.

The firm opened its doors with two major clients on board, the Kuwait Investment Authority and the George Kaiser Family Foundation, which is also an investor in the firm. As the year progressed, the Los Angeles Fire and Police Pensions and the State of Wisconsin Investment Board were among the institutions added to its client list.

Over the next year, the firm plans to continue growing its client base and to nearly double its staff of approximately 12 investment professionals.