Investment Approach
StepStone’s investment approach focuses on utilizing proprietary research to identify strategies and geographies that will out-perform in the future and picking the top performing fund managers and co-investment opportunities in these areas.Research. StepStone’s investment process utilizes extensive proprietary research to identify the segments of the private equity market that we project will out-perform over the next fund cycle (4 – 6 years). StepStone’s portfolios are developed off this foundation of research. For instance, geographies and investment strategies are emphasized that we determine are positioned to out-perform. Furthermore, our manager analysis incorporates our view of the type of strategic focus that will be best positioned to capitalize on the conditions we project will exist over the next fund cycle (e.g., operational focused, financial engineers, value or growth oriented investors, etc.).
Allocation Strategy. StepStone utilizes its research to over-allocate/under-allocate to specific strategies and geographies within an overall framework of a diversified portfolio. We call this proprietary process Targeted Diversification™. The goal is to avoid index-based returns and the costs of over-diversification. This allocation strategy, utilizing our Targeted Diversification™ approach, provides the framework for our selection of specific fund investments, co-investments and strategic direct investments.
Investment Selection. StepStone has the unique ability to incorporate fund investments, co-investments, strategic direct investments and/or secondaries into one portfolio development strategy. The investment techniques utilized in each portfolio depend on the specific areas of interest of each of our clients. We utilize proprietary investment processes, with an extensive use of analytical techniques, to evaluate each type of investment. These techniques include extensive analysis of how returns have been generated historically (fund investments), the historical returns and strength of team in the relevant industry and investment style (co-investments) and in depth analysis of fund and firm structure to indicate firm stability and team motivation (fund investments).
