StepStone Group Assembles Underwriters for Upcoming IPO

The alternative asset class investor is said to be gearing up for an upcoming public offering.

Stepstone Group has assembled a team of bankers to help underwrite the company’s initial public offering, according to a report by Reuters citing people familiar with the matter.

The showing could arrive as early as the first quarter of this year, Reuters said. Among the lineup of lead underwriters in New York are Goldman Sachs, Morgan Stanley, and JPMorgan Chase, according to the publication. The report noted Stepstone has already registered its IPO confidentially with the US Securities and Exchange Commission.

Reuters’ sources also said the company could value itself in tandem with Hamilton Lane’s valuation, which has a market capitalization of $3.3 billion.

Funds managed by T. Rowe Price and Fidelity provided support for StepStone’s IPO as early as last October, according to Bloomberg News. The funds, together with a U.S. family office, collectively bought a 14.4% stake in the company, with the Fidelity funds acquiring about 8% of the company, Bloomberg reported, citing sources familiar with the matter.

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StepStone Group describes itself as a global private markets firm providing customized investment and advisory solutions to investors, with a specialization in private markets. The company oversees an aggregate $280 billion of total capital allocations across its clients’ portfolios, which include public pension funds and sovereign wealth funds. That includes $58 billion in assets under management, spanning private equity, real estate, infrastructure and private debt.

StepStone began a new venture last September with the launch of Coversus, a new platform focused on delivering StepStone’s institutional capabilities to high net worth and mass influent investors.

“Together, Coversus and StepStone will integrate fund investments, secondaries and co-investments to create customized product solutions for the private wealth sector,” a press release said.

StepStone is based in La Jolla, California, with 19 offices in 13 countries.

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Scary Similarity: The Roaring Twenties and Today

Then resembles now a lot, says State Street’s Arone.  And we know how the 1920s ended.

An eerie thought: The decade that began 100 years ago, known as the Roaring Twenties, was awash in prosperity amid a booming stock market—and came to a nasty end.

“Can’t repeat the past?” asked Michael Arone, chief investment strategist for State Street Global Advisors US Intermediary Business Group. “Why of course you can!” Writing in a recent market commentary, Arone sketched out the parallels between the decade we’re now entering to the one from a century before, with its financial excesses.

Arone emphasized that just as now, the 1920s started with a surge of new technology, such as radios and vacuum cleaners. Electricity use became widespread. So did automobile ownership. More important, that decade’s soaring stocks had three catalysts: low inflation, tax cuts, and an easy-money Federal Reserve. That’s the same as now.

Inflation at the outset of the 1920s was similar to today’s, at 1.4% annually. Congress cut taxes, which had been hiked to a top rate of 75% during World War I, in several stages to 25% by the 2025 tax year. For 2020, the highest level is 37%, following the late-2017 tax reduction. Back in the day, the Fed chopped rates from 6% at the decade’s outset to 2% by 1925. The current Federal benchmark range is 1.5% to 1.75%.

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And the market loved all this, then and now. “Low inflation, tax cuts, and an accommodative Fed supported the market in the 1920s, obscuring the asset bubble forming beneath the surface,” Arone recounted. “With the same forces bolstering today’s market, major US stock benchmarks are at all-time highs and market volatility remains low.”

The Fed made some big mistakes, of course, at the end of the 1920s. In mid-1929, to take the momentum out of rampant market speculation and escalating debt, the central bank lifted rates to 6%. That action proved to be disastrous. As the saying now goes, the Fed often causes recessions by over-reacting.

The 1929 stock market crash followed, with stocks losing half their value in one month. The Great Depression hit soon.

The present-day Fed seems to have learned the lesson of 100 years ago, although last year it needed a reminder, as President Donald Trump, other pols, and many on Wall Street protested. The Fed interrupted its campaign to raise rates, and in three successive moves, it lowered them to where they are in 2020. As the market surged anew on the monetary loosening, the Fed said it won’t consider raising them unless excessive inflation shows up.

Ben Bernanke in 2002, then a Fed governor and four years away from becoming chairman, stated, “Regarding the Great Depression … we did it. We’re very sorry. … We won’t do it again.” The occasion was the 90th birthday party of economist Milton Friedman, a Nobel Prize winner who was critical of the Fed intervention in general and its policies in the late 1920s in particular.

To State Street’s Arone, “At the dawn of a new decade, governments and central banks seem committed to keeping the party going, but risks seem heavily skewed to the downside.” In his commentary, he evoked the distant green light at the end of a dock in F. Scott Fitzgerald’s The Great Gatsby, a novel that chronicled the wild times of the Roaring Twenties. The green light symbolized dreams for the future.

“Yes, the light on the horizon is still green,” Arone wrote, “but it could soon start flashing yellow.”

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