Animal Spirits Podcast - Talk Your Book: An Update on Private Markets

Episode Date: December 5, 2022

On today's show, we are joined by Bob Long, CEO of StepStone Private Wealth to discuss timing private markets, how valuations have held up in private markets, an update on venture capital, and much more!   Find complete shownotes on our blogs...  Ben Carlson’s A Wealth of Common Sense  Michael Batnick’s The Irrelevant Investor  Like us on Facebook  And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.      (Wealthcast Media, an affiliate of Ritholtz Wealth Management, received compensation from the sponsor of this advertisement. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information.)  Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's show is brought to you by Stepstone. To learn more about the risks and investing in private assets, visit StepstonepW.com. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holtz Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritthold's wealth management. This podcast is for informational purposes only and should not be relied upon for investment

decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Donald Spirits with Michael and Ben. It has been a tough year for public market investors. The S&P is down around 15%. Bonds are down almost as much, actually. Yeah, because I'm down 15% as well just to probably, yeah. We've said many times the stock market is not the economy.

Is the stock market gaslighting us? Is the question that I've asked because the economy seems to be doing relatively okay? If you were just looking at returns in private markets, you would conclude that everything is more or less okay. Now the question in there is, are private marks out of touch with reality? Or is the stock market because it's interesting, everyone's been waiting for a downturn to happen in the economy and it hasn't happened yet. People think it's going to happen, people are preparing for it to happen, but it hasn't

happen yet. So it would make sense to me that marks in private equity would still be holding up fairly well. What's interesting about the conversation that we had is you could say that some of these things that haven't been marked in a year need to come down. But cash is real. I can't remember the phrase that Bob used, but it's a good phrase. Cash doesn't lie. Is that it? Cash is no enemies. They've conducted 30 transactions, cash on cash. And I can't remember what the exact numbers were, but the majority of them were within the- Plus or minus 2%. Okay. We talked to Bob Long, we've talked on the show before from Stepstone Private Wealth, and they invest in private assets. It's mostly private equity, but also infrastructure and venture

capital. And a lot of it is for RAs and advisors to invest in on behalf of their clients, for individuals who don't have access to those types of investments. And he said, because listen, a lot of them are using either third parties or their own valuation models to value these companies. And it's not like the stock market where shares trade every day and you know exactly what the price is or what people are paying for it now. There isn't much secondary market here. So you're going on what their valuation models say. And so it doesn't turn into a real valuation until there's some sort of merger or acquisition or some sort of event that lets you know this is what someone else is actually willing to pay for it. Anyway, interesting

conversation. Here is our talk with Bob Long, the CEO of Stepstone Private Wealth. We are rejoined today by Bob Long. Bob is the CEO of Stepstone Private Wealth. Bob, welcome back to the show. Thank you. Enjoy being here. Last time we talked to you, which was I don't know, I guess, earlier in the summer, regardless of when that was. Four market cycle years ago. That's the thing, the cycle it feels like everyone, and I use everyone in quotes because Michael doesn't want me to use that term so liberally. But it seems like everyone is predicting we're getting closer and closer to a potential

recession. And I think thinking about the idea of a recession through the lens of private markets is always interesting because the public markets can front run a recession or it can be late. Public markets tend to sort of overreact. The private markets are in a different place. because the marks take longer to get sometimes or longer to update. So it's not like you see it happening in real time or the market's really adjusting, but what if anything happens to the private markets from your experience there,

if and when we do go into an economic slow down? Yeah, I've had the benefit of investing across a number of cycles, so I'll share my perspective on that. The first thing is, of course, M&A volumes decline, which we've seen. What might surprise you is that realizations in a mature portfolio like the one in S-Prime, our core fund, continue at a reduced rate. But if you just read the Wall Street Journal, you would think that there are no M&A deals going on. And in fact, there's substantial amount of liquidity events.

We had 30 liquidity events and our portfolio during the last six months from March 30 to September 30. And what's really interesting to me and what I pay attention to is how do those realizations compare to the last mark. How close were we to the cash received when companies' assets were sold? And I'm pleased to say that we were about 2% above the last mark when those companies were actually sold and about 27 of the 30 were above. Three were below, but on average they were a couple of percent below. So this is particularly interesting. We run our fund for two years. I've been in this business a long time, but we run our fund for two years. What happens in periods of market calm is not that interesting from evaluation perspective. This is more interesting. And so I think we've now

had six months of seeing what volatile markets can do to valuations and cash flows. And I feel pretty good about that. And of course, I'm proud of what we've done. I think you would find a similar statistics if you talk to others who run mature portfolios of private market after. Bob, when you say you won the fund for two years, could you talk a little bit more about that. That seems like a short period of time. Or do you mean you've been running it for two years? Our fund, S-prime, delivers the content that Stepstone, a large institutional manager, investment content, generates for individual investors. So we've had this package, S-prime, in the market now for two years. Stepstone's track record, my experience, much longer. But for this fund, this is the first period that I think is particularly interesting. This particular fund that we're talking about, and I have obviously follow-up questions on some of the marks and what might be coming down the pike.

Is this a fund that is open-ended? Are you raising money forever? It's not like a set 10-year type of traditional fund. So this is a tender fund. It accepts subscriptions monthly from individuals and smaller institutions and offers liquidity quarterly. It's really structured and regulated like a mutual fund. So, Michael, if you invest on December 1, you're going to invest in the assets we owned last month. You're going to get your pro rata piece.

They're going to close a bunch of transactions. actually in December, you'll own part of those. It's an evergreen fund with people coming in and out. Today, largely in, not much out, but of course over time, you'll have in and out. So getting back to the marks, is it fair to say that the private market works on a lag? And so we have yet to really see what down marks might look like? Yes, there's a bit of a lag. No, we've actually started to see the marks. That's why I chose this particular period. If I'd quoted statistics to you from 2021, they would have made our marks look really conservative, us look really great. That's not particularly

interesting. We've started to see those marks roll through and some general partner, some marks are down, some marks are up. Again, what's interesting is even in a volatile world, you have certain asset classes and our fund includes 25% infrastructure, real estate and private debt that are still up. You also have sectors within private equity that are benefiting and some that are, of course, hurting from the dislocation and uncertainly we described. But in balance, the marks have rolled through. Obviously, the June marks are all in, and a number of the September marks are also in. And then we have a number of assets that are being marked more currently like the co-invest.

We're, of course, taken into account things like currency, which hurt us this year, by the way, is we have some Euro-denominated assets, currency, and those sort of things that are constantly being rolled in. So, yes, there's a lag. We do our best to reduce or eliminate the lag, but the distress in the public markets is already rolled through to a large extent portfolios like ours. Just to make it clear for people who aren't used to investing in privates, the way that it works is you have some sort of valuation method that you use to mark your companies to market, and then when you actually see some realizations, that's what you're talking about,

where you can kind of compare the valuations that you've used to actual prices that are paid. Maybe try, but cash has no enemies. valuations are confirmed by realizations. We do the best we can. We have extraordinary technology. We have a deep team. We're very focused. We do the best we can. We think we're as good as anyone at valuing these assets. I like to see where the actual cash comes in versus the mark. To Michael's point about markdowns potentially, I think it's important to remember that fundamentally a lot of companies in the economy is still doing well. It's just that the stock market has fallen because interest rates and inflation and the Fed and all these things. I would imagine a lot of these companies, private-wise are still performing pretty well and producing cash rolls and profit. And so I think everyone's waiting for a slowdown, but we haven't really seen it yet. Many of our companies are actually growing revenue. Now, clearly, we go into a genuine, process. We're not immune from that, as I think we talked about last time, but we benefit from

the private equity firms and the entrepreneurs being able to take a long-term view, not having their intrinsic value mark-to-market every day, managing across cycles, being better aligned. You know, management owns a lot of these companies. Often the teams own a lot of these companies. So we believe over time that produces a better result and it particularly produces a better result in times of economic dislocation or headwinds or challenges to have a team that's really aligned. Private equity can actively manage companies in ways that we believe are a little more skillful or adroit or responsive to market conditions. And we think that benefits our portfolio you have to. Bob, I know you're not a macro guy, neither are we, but interest rates are

supremely important. And a year ago, the one-year Treasury note was yielding effectively zero. I think it was like six or seven basis points. And now it's almost five percent. Risk-free money, obviously there's inflation net, but risk-free, you'll get your money back in the year and you'll get almost five percent nominal. That has to play an enormous role in investor expectations, investor demands, and also from the private equity side, you lean on debt financing a lot. Can you talk about the role that interest rates play in your portfolio companies? Well, first of all, most of our portfolio is mature. It's not companies that we invested in the last six months.

And we'll talk about secondaries later. Let me circle back to that. So we have a mature portfolio. Much of that debt is fixed rate. The bond debt is generally fixed. The bank debt is generally floating. The general partners and management teams that manage these companies are very sophisticated from a capital market's perspective.

It doesn't mean they can read minds or a clairvoyant, but they are pretty smart around hedging and locking rates where they can. That all said, increasing rates increases the cost of debt. It weeds out marginal private equity investments. And I think two things happen. One, marginal deals are weeded out, which over time, if you look back historically, what you see is periods of dislocation and uncertainty tend to generate the best private equity returns. The weak or average deals don't get done. The really good deals get done. So it's generally been a friend that generally been a positive. The second thing that happens is existing companies and funds are available for sale in the secondary market typically at discounts and typically at wider discounts

during periods like this. So broad market survey suggests that discounts of about doubled over this year versus last year. We've taken advantage of that in our fund as of others. And that discounting ability to buy at less than intrinsic value is something that tends to drive returns in a fund like ours over periods like this. I get all that that you've taken advantage of low rates prior to the increase, but just from an allocator's point of view, some of the tradeoffs that they might be thinking about with private credit or income generating investments, everything is competing against the risk free rate. And when it goes from zero to five, that has to change the risk that an investor is willing to accept, whether that be credit, illiquidity, or what have

you. So how does all of that filter through to portfolios on the investor side and your side and just talk about that? It's a really good question. I agree with the assessment. At a very high level, they have to be connected and they are connected. Here's what we're seeing. We've actually seen an increase in flows to our funds as public market volatility has increased. We believe that is because investors have less confidence in the public markets. They recognize a need to diversify, and they like the idea of being more invested in the real economy sectors that tend today, for better or worse, to be funded by private equity and less by the public markets, which have been hypnotized by a handful of what I'll call high profile or sexy second. many companies that aren't making any money that get public and occupy a very large portion of various indexes. We've seen really substantial inflows. In fact, our most recent fund, we launched

our venture and growth fund spring about a month ago. And we closed with $100 million in the first close, which is truly exceptional. By the way, that's all third party money. That's not balance sheet money. Truly exceptional for a first fund. So we feel the tone is very good for private markets in this environment. Let's step back. I think the last time we talked to you, you were actually known as conversus and working with Stepstone. It sounds like the Converse's name is gone.

Now it's only Stepstone. Tell us how the business operates here. So Stepstone Private Wealth is a wholly owned subsidiary of Stepstone Group, which is one of the largest allocators to the private markets in the world. Stepstone has responsibility for over $600 billion, all in private assets, and covers all the major private market asset classes, private equity, private credit, real estate and infrastructure, does that on a global basis with about 900 professionals, 23 offices, 14 countries. We're a really big global firm. And in fact, we're one of the largest allocators to the private

markets. We allocated $75 billion last year in 400 separate transactions. We think we'll do $100 billion in the next year. And Stepstone Private Wealth simply harnesses that engine or delivers that investment content and a package that we believe works better for individual investors and smaller institutions. And we generally do that through these evergreen funds where you don't have a capital call and a distribution. You commit once, the money goes in monthly, you have liquidity quarterly, you get a monthly net asset value, you get a 1099, not a K1, and you have a $50,000 minimum. We try to make it as easy as possible for individuals. And so given that relationship, we thought it made sense to align ourselves better and simply call ourselves

stepstone private wealth. I want to talk about what you said about the private market, maybe having some different characteristics. I think that it is irrational to think that private markets will behave differently in a downturn than public markets. However, I do understand that the private equity things that you're investing in have a much different composition than, say, the S&P 500, which is dominated by Infotech. So I think it's irrational, but I understand that it also might make sense. What I do think is rational is investors opting for illiquidity because it feels good not to get marked to market on a daily basis. However, maybe the liquidity premium flips to a discount, as perverse as that sounds, but to me, that's almost rational that I would pay I'm making

it up, 50 basis points a year below the S&P 500, just to not see it every day. So there's a fine line between delusion and fake and marks that are not real. So how do you think about how investors should think about the illiquidity? I think investors should require a premium, and I think we deliver it. We do our very best on a monthly basis to deliver the most accurate mark representative of market conditions based on the best available information that we can. It's not perfect. We do back-tested, as we discussed earlier, with the comparing realizations versus valuations. I recognize numerous investors do have the perspective you shared, but I think the majority of investors expect us to deliver a premium for their liquidity. We've historically done

that, and it is our goal to continue to do that. You mentioned that your step zone is involved in private markets across the spectrum, different asset classes. And kind of in the show prep beforehand, you said that you and your leadership team have never seen so much interest in venture capital. I think I know why that is. It's a very sexy asset class, but why do you think that is? And what's the feedback you're hearing from people who are clamoring to get into this space? I think many sophisticated investors recognize despite the massive amount of innovation progress made over the last, I'll call it 20 years, maybe since the dot-com bust, that we are still in the early to middle innings, that numerous sectors remain to be disintermediated, improved, made more efficient,

that the venture capital ecosystem has gotten better. I was around during the dot-com bust, and I understood venture capital firms, and I was invested in some of them for Bank of America's portfolio when I ran that, when you had to invest $5 to $7 to $10 million to figure out if the idea had Lex because of the cost of people and hardware and software. software. Today, a venture firm or management team can figure out whether their idea works and is commercially saleable much, much more quickly. And I think investors recognize that. I think secondly, the public markets are so dominated by public technology companies. There's real interest in getting involved in those companies at an earlier stage recognizing the risk

associated with that. Investors believe they are compensated for taking that risk. by getting involved in venture-backed companies in an earlier stage. Today, companies just go public so much later. And in fact, you can be a really big capital-intensive company like a SpaceX without having to access the public markets. I think, Michael, you mentioned this on one of your earlier podcasts with another guest. That pool of capital wasn't available. Even 10 years ago, you could have been 5% of every big pool of private capital in the world.

and not had the amount of money necessary to fund the massive CAP-X of enterprise like SpaceX, just to stick to that one. So I think those things are different. The other thing that's probably not obvious, Venture returns have been very strong. I'm not going to quote them, they're out there for those to look up and we're not touting the broad market. That's not news that Venture returns have been very good. What also is not news is that the dispersion of returns within venture between, say, the bottom quartile, the weakest 25% and the top 25%.

It's 2,000 basis points. If you looked at a large cap equity fund, the difference between the best top quartile on the bottom quartal might be 200 basis points, 9% versus 11%. It's thousands of basis points for ventures. So don't do this at home, kids, if you guys remember those TV shows

and those commercials from Saturday mornings in our youth. This is an asset class. You need to be in the top half, if not the top quartile. number one. Number two, it's the most access constraint. It's the hardest to get into. Michael, again, I think you ran a portfolio for an endowment if my memory serves and you've

talked about how hard it was to get in to, even as an endowment, which are considered the most privileged and advantaged investors, even for an endowment if you weren't large and had really large, important relationships. So it's hard for even sophisticated, wealthy, connected individuals to get into venture. And third, it's the longest lockup. It takes the longest amount of time to find out if you made a good investment to get your money back. The fact we've been able to package venture investments into a 40-act registered tender fund with monthly inflows, quarterly outflows, monthly net asset value, we think it's a big achievement

and people are really, really interested in that. First of all, that was Ben who was at the endowment. I had a paper endowment model portfolio. You had a 50-50 shot there. That's a high probability bet. When we're talking about venture, Bob, there's venture capital, which is early stage, risky, risky stuff, and then there's growth capital, which is obviously later stage, risky, risky stuff.

When you're talking venture, what do you think about? Great question. Our fund, and I should have been clear, spring is venture and growth. We are not seeking the extraordinary returns and the risk associated with angel or seed investing. then you've got the next phase, can it work? Can it be commercialized? We think about the sweet spot for that fund starting with hand management execute. Is there a good idea? Have they proved they can work together? Does the product work? Their clients. And that's why we target a certain returns, which I cannot quote on this call, but your financial advisor can. We're starting in sort of the C or D round, for those of you are familiar. And then And this fund will be, call it 80% venture C&D round, crossover rounds, and then the remainder growth equity. And obviously those two, as you describe, Michael, come together and blend.

And a company that might have been venture three years ago might be break even and be growth and buying a competitor two years later. And we want to be able to continue to invest in those companies and support them toward exit. Venture and growth together are in our spring fund. Was it harder for you to create a similar type of fund for venture as it is for more mature private equity companies? Because it sounds like it has a similar style of fund in terms of liquidity and lockups. Was it a bigger challenge for this one? Absolutely, it was. And I'll tell you why. First of all, we had to be convinced that we could

generate the deal flow. And we are. We believe we're the largest allocator to venture and growth in the world by a factor. Second, the ability to model cash flows and predict inflows and outflows, which is essential to meet the liquidity promise to investors is critical. And that's just harder in an asset class like this. And then finally, we had to calibrate this for the amount of liquidity. So in this fund, we're offering 2.5% per quarter, not 5% per quarter. And this fund is limited to qualified clients. so those with $2.1 million of investable assets, whereas S-Prime is for accredited investors.

So this is more refined. It's the same $50,000 minimum, same $1099, same monthly reporting. I thought this was a longer putt. The flip side of that is, I'm prepared to say I think we are the only firm, one of, if not the only firms who can do this and execute this successfully, and that's why we're really excited about it. As you're looking through some of these companies, maybe not in 2022, but surely in 2021, your head must have been spinning with the valuations. So where are we in the cycle?

A lot of these are, as you mentioned, great companies, not ideas at this point, great companies. However, the multiple that investors were putting on these future earnings was dizzying. Where are we today? So we've just launched spring. We've made our first investment. We're teed up to make our second investment. So you launched it at a pretty good time, it seems like. I would love to take credit for that. As we talked about last time, we lost S-Prime brilliantly in the teeth of COVID and was a great time to invest money. It was a pretty hard time to raise money. First close was $35 million on that fund.

It was $110 million for this fund and, again, a narrow investor base. So again, I'd love to take credit. But I will say this. We do think, to Michael's question, venture valuations have come down. We believe this is a very interesting time in the cycle to be entering the venture market. We're doing it primarily by buying funds on the secondary market so we can set the price by valuing each company and then determining the discount will pay to bring those prices to where we think there's a fair, if not attractive, future value.

When you say the secondary market, do you mean from previous investors? I do. So we should maybe talk about that because I promised earlier. So today in a more mature private market, you can buy funds on the secondary market. You can also buy individual companies on the secondary market, which is more of a development over the last couple of years. And because of the amount of capital, we allocate two general partners for their new funds, which in our world we call primary funds, we have a very strong advantage as a preferred partner of choice. When those funds become available, and I should mention this, unlike any other asset I'm familiar with in the capital markets, if you want to sell your interest in a private equity fund, the general

partner of that fund has to consent to the sale. The general partner can control who you sell it to, and they, of course, are not required to share a lot of information with prospective buyers, particularly those that they find less attractive. So this is a very, restricted market, information flows important, and relationships are critical. But there is a secondary market. We're very active in it. The majority of S-prim, our core fund, it's 78% secondaries today, and all of spring as secondaries. For the near term, spring will be a majority secondaries. In fact, I would say for the medium term, spring will be largely secondary, but of course will evolve as market conditions do. In my endowment days, typically those secondaries, especially

in private equity, we're offered at pretty steep discounts. Is that still the case? Or is it because there's more liquidity there, you don't get as big of discount if you're buying a fund from someone else? It's true there's more liquidity today. And discounts move up and down. 2021, average discount was in the 10-ish percent range. First half of this year, it was more like 20 percent. Venture capital would generally be a higher discount, private equity generally a lower discount. But discounts are quite wide here in the fourth quarter. If I could draw an inference from your questions, you guys have been pressing me around, where's the dislocation and pain going to show up? And that's a fair question. And the answer is, in our market in secondary discount. So right now,

we're seeing what we believe to be really, really interesting assets at attractive prices. One of the things I think your listeners would be interested in. Large institutions operate by pretty, I don't want to say strict, but defined asset allocation targets. They want to be, I'm making this up, 80% public markets, 20% private markets. Well, when that 80% loses 20% of its values, that's 64, okay, so then they need to sell to get back into the band of asset allocation that they've agreed to with their boards. So, so-called denominator effect, that among other things generates real operational. opportunities for parties like ourselves who are bringing in capital. We're bringing in fresh

capital every month. And so that's a particular advantage to us. In addition to the data advantage we have as being one of the largest allocators to the private markets and then these relationships with general partners. Can we talk for a minute about infrastructure, which is a big focus of yours. What exactly is infrastructure investments? Infrastructure investments span lots of sectors from telemarking. to energy to social infrastructure, but the key unifying characteristic is some sort of contracted cash flows. And typically those contracted cash flows have a long-term contract associated with them

and that long-term contract has an inflation index to the revenue side. So that's why it's getting so much attention today. We always plan to have a meaningful allocation in S-prime. It's been in our asset allocation. We're now in that with real estate about 20% in the real asset bucket, which includes infra, and real estate, more than half of that is infrastructure. So it's that. We think it's a really interesting asset class and one that most individual investors, even the most sophisticated, have historically not had access to. That could be like a toll road, right, where you can increase the tolls over time, that sort of thing, and you know consistent revenue.

So I'll give you another example. invested in the second largest fixed-based operator in the United States. These are the many terminals for private aviation and certain cargo and that sort of thing. So those have very long-term leases and that generally monopolistic situations. We're invested in those. We think that was a great deal alongside a lead and general partner. We own a bunch of toll roads in Europe. Pick another example. We own parts of airport concessions. We own a lot of really, really interesting assets. in the infrastructure pace. And again, what I think is cool about it is it adds a seasoning to your portfolio,

sort of hard to get otherwise. Question about real estate. Residential real estate obviously had a phenomenal 2020, 2021. 2022, we're on the other side of that. And certainly, at least as far as my unprofessional opinion, is that commercial real estate is going to be in trouble. So where are the opportunities in real estate? Refinancing, value add, secondary city.

creative financing, that sort of thing. I'll pick one deal we did. I'm not a residential real estate expert either. In fact, I'm not a real estate expert. That's a very high level, my opinion. We bought a portfolio of 93 modular housing communities, which you think of as workforce housing around the country. We actually bought this first half of 2021. So it's a little more data deal, but I think it's interesting. We didn't do that in response to the session. We did it because we thought it was a really good investment that had low teens expected returns and a big component of current cash returns. And, you know, again, an asset really diverse because I think, in my opinion, competition with that's hyperlocal. That's like 93 separate

investments with a really great operator in an asset class you're not going to see otherwise. And I think pretty reinflation and, well, inflation, I mean, these things are often relatively short term. So landlord can raise the rent, but also recession-resistant. People will make their payments, their rental payments on these housing. And if they don't, there are a line of people to go in behind them. You have all these different offerings. And I think last time, correct me from wrong, you said, most of your interest comes from RAs who are allocating for their clients. Where is the biggest demand in terms of product? Is the private equity offering the biggest one people want to get into? Where are people wanting to put their money when it's an RAA allocating to you?

To clarify, we have S-Prime, which is now about a billion dollars and has been out for about two years. So that's seeing the largest flows. That's mature as a nice track record. It's up 77% over two years, up 7% this year, year to date, which we feel particularly good about. So that's obviously getting the biggest flows. Spring is the brand new venture and growth offering, just launched with 110 million. Flows to that are building. The RA community has been very supportive of.

of both, obviously mostly S-prime since it's raised more money. We have one warehouse that is now investing in S-prime. And our distribution in Europe, Canada, and South America has actually picked up. And we've seen some really nice allocations there from private banks. So, it's global. Bob, as we come to the end of this conversation, can you explain to listeners how fees in this structure work, particularly I'd be curious to hear about performance-related fees. S-Prime, our core holding that invest across all the asset class as accredited investors. S-prime is the low-cost provider in its market, in our opinion. We charge a 1.4% management fee, no promote, no carried interest, no hidden fees.

1.4%. Spring is our venture in growth offering, the new offering, available to qualified clients, $50,000 minimum, again. Again, that charges a 1.5% management fee and a 15% incentive fee charged annually with a life-to-date high watermarked. We think those fees are very competitive with a fund-of-fund option or even a direct option. Those are the fees on spring. So, Bob, you said that your private equity fund is up this year.

Tell us how that's possible. That's a really good question. And we are not immune from the public markets, as we've discussed here. In our case, we are up about 7% year to date, and that's driven by a handful of things. First of all, we're dollar cost averaging. Our fund is raising money every month, so we're putting money to work at new valuations, which have proven to be attractive. Secondly, we're using most of our capital to buy secondaries at discounts,

which then get reflected in our net asset value as those assets are marked up. And finally, about 25% of our portfolio is in assets that organically generate, cash flow, like infrastructure, real estate, and private debt. And that provides some ballast, if you will, to the portfolio. The combination of those things has helped us, frankly, outperform in a tough public market environment over the last nine months. Where can we send people to learn more, Bob? Thank you. So stepstone privatewealth.com is the best source of information on us. We offer our products primarily through financial advisors. We love it when you ask your financial advisor about S-POM, Spring, or Stepstone private wealth. And again, but if you're

not getting satisfactory information there, feel free to contact us through our website. We'd love to hear from you. Thank you very much, Bob. We appreciate the time today. Thanks to Bob for coming on again. Remember, check out Stepstone p.w.com to learn more about their private markets and the risks involved. And send us an email, Animal Spiritspot at e-mail.com. Thank you.