Episode Transcript
Tom Keck: So I think creating this benchmark. First and foremost, will demonstrate the historical performance of private markets and will create something against which investors can, really, in real time, measure the performance of their investments.
Gerald Toledano: Welcome to FTSE Russell Convenes. I'm Gerald today. And this session will be talking about benchmarking private markets. I'm joined by Tom Keck. Thank you, Tom for joining today. Tom, you are a co-founder and partner at StepStone Group. And you're also the head of research and portfolio management. Do you want to take a moment to introduce us to steps on growth?
Tom Keck: Thanks, Gerald, for having me. It's a pleasure to be here. When I tell people about StepStone, they often comment that they're surprised that they've never heard of us. We manage over $700 billion of private markets allocations to private equity, private real estate, private infrastructure and private debt. Over $180 billion of assets under management. We deploy over $75 billion per year into the private markets. We have over 1100 employees and about 30 offices worldwide.
Gerald Toledano: Okay, that's very impressive. I know also that you're particularly famous for your very rich insight, your ownership of some very unique data, the development of a of a system that is called SPI. Do you want to give a little bit more background on that side?
Tom Keck: Sure. When we started the firm we saw data and technology as, a weak spot for private markets. There wasn't a lot of data and information available about how the different strategies performed relative to each other. And also relative to traditional public markets. So we, built a, data and technology platform to collect information about the market.
From the ground up. At step Stone. Initially, we built it, for our internal use, in doing the investments that we do. And, about ten years ago, we started to make it available to our clients also to sell subscriptions to, institutional investors who wanted to benefit from the information and insights that are available on the system.
Gerald Toledano: So for real, I mean, we've been for the last 40 years at the forefront of providing insight and representing TVT of investments through benchmarking, indexing that are representative. This week we're very excited. I mean, to be announcing a partnership with steps one Group. Where we're going to use your insight, your methodology, your models and our relationship, to develop some benchmarks that are going to be particularly relevant for the asset owners that are starting to take more and more, total portfolio approach for investment funds that are in need for more frequently observed, evaluated, portfolio.
Can you give, also a little bit more insight how you see this partnership integrated into what you are seeing as the the new way of allocating and investing in private markets?
Tom Keck: Yeah. So I think as private markets have matured, the breadth of, investor base, has, widened substantially. And, we see a convergence between the private markets and the public markets. We're using our data and information to try to create products that allow investment by, investors who traditionally have underinvested in private markets. Individual investors would be a good example.
And we have noticed this trend towards, public private convergence. We know a lot about private markets. We don't know so much about, public markets and, construction of indices in particular. We really searched for a partner who could sort of navigate our blind spots, around how to create, these indices, and ensure that they were calculated properly and in a sustainable way.
So we really, we're excited to, join forces with Lessig and Quincy Russell to create this new set of benchmarks that I think will really be differentiated and the ability to create, products that will, address these new, new consumers.
Gerald Toledano: Very interesting what you are saying. And, we are joining forces with both regulated firms that are coming from a different angle from the asset management and the fiduciary side from the benchmark administration. Side, resonate or a path to market is to achieve adoption and move into a broader investable of market. How do you see that developing potentially because we're coming from pretty far out in the private market. How do you see the the roadmap or participation or cooperation coming?
Tom Keck: I think the cooperation is, incredibly important. We have data and information, to create, an index. And I think that's, incredibly important. Historically, indexes in the private markets have lagged 90 days, and have really only been available on a quarterly basis with our data and technology. We're able to overcome, some of those limitations and create a daily price index.
So you'll have real time availability of, the index value. But as I mentioned before, a lot of people have never heard of step stones. It's important for us to have a partner like Footsie Russell, who has the credibility in the market to gain adoption, as you say, to essentially, provide the expertise in calculating these indices and distributing these indices, but also to, provide some credibility, with, a broad range of investors that, the data that we have are the best, available in the market.
Gerald Toledano: You mentioned earlier individual investors. We're seeing that, I mean, as a, a definite big, trend. A lot of the GP's are talking that it's an untapped, enormous, potential for investment for fund raising. And it's also an opportunity for retail and wealth to create their participation. I mean, into the asset class, that it's a, it's a trust fund part of the asset allocation within the rise of the Semi Liquid Evergreen Fund.
Maybe if you take all the intersection of benchmarking retail evergreen, some illiquid funds, can you give a little bit of insight and your perspective on how this all comes in form together.
Tom Keck: So I think making private markets accessible to individual investors has been, a hue and cry over the last 5 to 10 years. If you look at performance of private markets relative to public markets, real value added by general partners who are taking active ownership, in these assets because of regulatory limitations, because of liquidity limitations, because of data and information limitations, individual investors have largely been unable to access those opportunities.
And so they've been missing out. On this type of, excess performance that has been increasingly available to institutional investors. So I think, creating these indices will, enhance the understanding of private markets generally. So, you know, the first barrier is just education, getting people to understand what is the value proposition of private markets, what's the role they should play in an investment portfolio.
Why do I need to have this access. So I think creating this benchmark first and foremost will demonstrate the historical performance of private markets, and will create, you know, going forward, something against which investors can, really, in real time, measure the performance of their investments. Once you get beyond the education, there are, you know, additional technologies required, interval funds, intermediated liquidity for individual investors.
That technology has been advancing. But I think really this education component in and providing visibility into how the overall market, is, performing is, is important. I think the second piece, once you have the adoption of, of those indices, is, then you can start to create tracking portfolios that, both institutions and individual investors will be able to invest in, just as we've seen, index investing in, public markets, gain a lot of traction.
I think the historical performance of private markets, would lead to an interest in having index tracking portfolios for a variety of different strategies.
Gerald Toledano: On that point and to compliment I mean, on that point, you have the particularity to be both on the advisory side, you're also managing some separate managed account, some, investment fund. You you are a player also in the secondary, space taking, I mean, the rabbit in that hat and thinking about the, the benchmark and the tools we are going to build.
How do you think they help potentially developing a more accurate, more fine liquidity? Both comfort and Mark for the players and the provider of the liquidity and maybe expanding the number of market participants to this, business.
Tom Keck: I think historically a lot there's been a lot of discussion about the opacity of private markets. There are, thousands of funds that are available. The funds are marketed, you know, every 3 or 4 years. And the information about the performance of those funds is presented in different ways and can be very difficult to, consume. It's job security for steps down group because we essentially, provide the service of understanding all of that and making those investment decisions.
But if there were a reference portfolio of assets, where the the contents of those portfolios was better understood and you could explain how those portfolios, contributed to this tracking portfolio, then I think there would be greater liquidity available in those, particular funds.
And I think providing additional liquidity has attraction both for individual investors but also for institutions, particularly as institutions have become, more adept at rebalancing their portfolios. You know, they'll have a greater desire to be able to find liquidity for, some of these private assets.
Gerald Toledano: Well, thank you very much, Tom, for joining us. I mean, during this convene session, I also want to extend a warm thank you and welcome some way to the FTSE family with this partnership. And we're very much looking forward to the cooperation and the longstanding partnership that we're building together.
Tom Keck: Thank you very much for having me. It's been a pleasure.
Gerald Toledano: Pleasure. Thank you very much.
