Stepstone's NAV Juicer
It's the BEST time to be an Evergreen Secondary PE manager! 1. Buy stuff 2. Mark up to NAV 3. Show great returns 4. Raise more capital 5. Repeat 1-4
As reported in Secondaries Investor, Stepstone just announced an offering for a new 40-Act fund, with plans to invest up to 80% of the fund in secondaries. Also: it includes a retail class!
This seems timely, because retail investors are feeling jazzed about secondary funds. Sellers of PE stakes are jazzed too, one might think, since the 40 Act/Retail funds have been reportedly offering more for these assets than other investors.
Like, wouldn’t it be cool to own a fund that owns a fund that Harvard or Yale used to own? We’d definitely pay up for that, and it seems cooler/less blue collar than maybe overpaying for a pro sports team.
One nice thing about the recent market dynamics: Stepstone (like others) has been gathering assets fast. They then get to buy at a discount to valuations provided by the investment managers of the fund it buys, and immediately “Squeeze for the NAV juice,” and go back to the higher mark.
At least this is what our uncle, who used to work in Private Equity Secondary Fund Portfolio Management, used to call it. Anyway, this quickly generates unrealized gains, as described in the fund’s S-2 filing:
“Valuation of the Fund’s Interests in Investment Funds. The valuation of the Fund’s investments in Investment Funds is ordinarily determined based upon valuations provided by the Investment Managers on a quarterly basis. “
And:
“Secondary Investments may be acquired at a discount to the Investment Fund’s NAV. As a result, Secondary Investments acquired at a discount may result in unrealized gains at the time the Fund next calculates its daily NAV.”
Oh, to be a Secondary PE manager in 2025, 😊 generating immediate and high-quality investment returns by buying things…then rinse and repeat with fresh inflows of capital…
We wish Stepstone great success with the retail capital raising and NAV-squeezing.
One thing though. It would be great if Stepstone could present its cost basis like most other 40 Act funds (or at least funds that aren’t Second
ary funds): it was a lot of work to undo this most unhelpful footnote below from the Stepstone Private Markets Fund:
"Private investments are generally issued in private placement transactions and as such are generally restricted as to resale. There are no circumstances that could cause a lapse in the restriction to resale. Each investment may have been purchased on various dates and for different amounts. The date of the first purchase is reflected under acquisition date as shown in the Consolidated Schedule of Investments. Total fair value of restricted investments as of March 31, 2024 was $1,909,271,187, or 82.2% of net assets. As of March 31, 2024, the aggregate cost of each investment restricted to sale was $3,061,767, $14,021,181, $11,376,546, $2,875,802, $1,190,219, $15,125,016, $14,300,000, $9,370,425, $4,912,115, $3,926,704, $21,517,786, $2,562,567, $1,900,000, $21,794,124, $2,400,645, $2,700,000, $4,938,839, $4,365,458, $5,000,000, $6,942,637, $4,171,578, $5,173,770, $4,833,313, $6,152,186, $1,083,980, $3,000,000, $2,021,311, $10,010,000, $4,674,871, $4,912,688, $3,628,907, $3,859,723, $5,000,000, $2,488,198, $0, $2,266,896, $10,477,354, $5,390,390, $16,654,184, $3,000,000, $8,645,469, $5,000,000, $9,083,794, $7,700,000, $751,477, $3,436,115, $9,133,280, $15,758,351, $1,751,598, $517,283, $0, $1,420,063, $7,242,232, $55,354,976, $12,972,493, $6,407,135, $266,014, $65,596, $1,073,632, $0, $4,103,594, $361,212, $932,694, $2,834,432, $18,396,091, $8,437,701, $7,240,012, $2,326,280, $3,588,401, $13,009,960, $20,441,461, $2,108,519, $12,525,533, $363,874, $152,768, $55,651, $5,090,916, $1, $2,652,290, $7,686,869, $3,916,008, $28,000,000, $919,287, $384,338, $0, $1,510,768, $2,353,284, $36,459,097, $4,893,596, $3,030,778, $2,405,848, $1,519,953, $565,168, $2,083,864, $10,488,623, $1,666,748, $3,385,944, $3,362,231, $5,108,077, $8,424,554, $5,007,766, $14,557,501, $7,600,446, $786,788, $29,794,703, $13,357,954, $15,751,563, $0, $1,410,445, $17,443,113, $4,147,603, $643,888, $31,000,000, $1,931,349, $9,798,591, $2,457, $993,987, $1,283,784, $5,333,541, $3,276,814, $5,301,716, $39,272,891, $10,286,084, $3,753,987, $542,748, $258,960, $1,437,195, $6,816,167, $1,446,842, $235,012, $4,801,355, $1,667,265, $9,112,848, $17,381,383, $11,384,770, $4,503,616, $13,097,980, $40,612,500, $1,551,980, $2,383,603, $3,410,939, $1,039,549, $75,461, $301,587, $740,795, $2,877,709, $3,902,198, $209,137,899, $2,181,284, $26,389,791, $7,040,481, $50,000,000, $1, $2,462,945, $74,239,644, $891,634, $2,455,731, $13,045,530, $1,223,286, $1,559,649, $1,945,308, $1,939,186, $10,976,669, $17,736,709, $171,758, $1,328,784, $7,627,875, $1,227,436, $175,987, $627,473, $5,984,953, $2,899,628, $354,764, $883,033, $2,299,604, $4,182,853, $1,848,759, $107,310, $174,627, $17,547,269, $44,609,724, $6,110,870, $33,800,000, $20,146,836, $139,258, $658,404, $5,896,581, $1,735,764, $720,543, $2,579,330, $4,826,421, $717,300, $553,537, $3,869,035, $572,680, $4,350,340, $7,418,954, $16,691,530, $2,292,835, $10,880,356, $40,494, $739,449, $6,576,795 and $4,727,410, respectively, totaling $1,636,088,852."
If we didn’t know any better, we might have thought Stepstone was trying to make it harder for due diligencers to figure out the NAV discount at purchase….or maybe spare some GPs (or even other LPs in the listed funds) a bit of embarrassment. Anyway, we asked Stepstone if they might consider presenting the cost basis of the fund’s holdings more sensibly, in the interest of investor alignment.
We’ll keep you posted. In the interim, just in case Stepstone doesn’t come through, we are accepting nominations for the name of their AltView award! (DMs welcome)
Stepstone N-2 Filing
https://www.sec.gov/Archives/edgar/data/2066799/000119312525111795/d920317dn2.htm