It all started with a wedding – Josh Cleveland’s nuptials in Playa del Carmen, Mexico in June 2010. Post-wedding, Cleveland was relaxing with his close friends Jeffrey Giller, Brendan MacDonald and Dev Subhash by the hotel pool. At the time, Giller, Cleveland and MacDonald were partners at Clairvue Capital Partners, and they mused about the possibility of someday doing business with Subhash, who was then part of the fund-of-funds team at Cohen & Steers.
Fast forward four years, and the poolside chatter has become a reality. In June, Clairvue agreed to be acquired by StepStone Group, a global private markets firm with $10 billion of assets under management (AUM), and form the company’s new property platform, StepStone Real Estate (SRE). The new business comprises the entire Clairvue team, which includes Giller, Cleveland, MacDonald and three other colleagues. Rounding out the group was Subhash, who joined as the fourth partner of the business.
StepStone, which already had established large and successful platforms in private equity and infrastructure, had been looking to launch a real estate business for the last couple of years. Meanwhile, Clairvue had been undergoing a strategic review of its business for more than a year, exploring options that included both a sale as well as maintaining Clairvue as an independent business but with new investment partners. The firm, which was formed in 2010 and had $400 million of AUM, was engaged in serious discussions with at least half a dozen parties, but it began talks with StepStone at the end of last year and closed on the sale at the beginning of June.
“There’s a chicken or egg problem with emerging managers,” explained Giller, head of SRE. “There’s a decent time trajectory to get to a scale large enough and enough funds under your belt until you can attract the larger investors.” Meanwhile, the emerging manager needs to shoulder the heavy cost burden of supporting a full team. “We finally concluded that it was the right direction for the firm to take, to become part of a larger platform.”
Although both firms had strong secondaries and co-investment businesses, Clairvue lacked a primary, or fund investment, platform. Hence the hiring of Subhash, who will be overseeing this business. The four SRE partners will own and control equal interests in the platform with StepStone Group. Meanwhile, Clairvue’s legacy investments will continue to be managed by the former Clairvue team, although all new transactions would be executed under SRE.
In its first 12 months in business, SRE anticipates overseeing the investment of more than $1 billion in capital in the US and Europe. The firm plans to invest through both commingled funds and separate accounts, although primary investments will be executed exclusively through the latter. SRE declined to comment, but PERE understands that SRE plans to soon launch a multimanager vehicle with an equity goal of between $200 million and $300 million.
“Many of the StepStone clients are looking for a more sophisticated solution than just a standalone primary investment or a standalone secondaries opportunity,” Subhash noted. “A lot of times, they’re doing multiple forms of investments within their own portfolios.”
SRE currently is evaluating approximately $1 billion of deal flow each in primary investments and recapitalizations. The firm is seeing a lot of pent-up demand from existing StepStone clients – which include sovereign wealth funds, corporate and public plan sponsors and large family offices – that have made fund investments with the company’s other businesses, and now want to do the same with real estate. As for recapitalizations, “a lot of groups are really looking to raise new equity for growth that are willing to sell a part of what they own today, and that really creates unique opportunities for us because you can really buy into the existing assets at a discount,” said Cleveland.
Meanwhile, SRE is underwriting $200 million to $300 million in secondaries opportunities and a similar amount in co-investments. MacDonald noted that the former Clairvue team’s experience in real estate secondaries will give them an advantage in sourcing and underwriting deals. And as fund sizes have generally become smaller and fundraising periods become longer post-crisis, “this creates an opportunity for flexible investors to co-invest alongside GPs in transactions that are too large for their capital,” said MacDonald.
In support of its $1 billion investment drive, SRE plans to add new staff in New York, San Francisco and London, which will increase its team from seven to 12 staff by the end of the year. The platform also anticipates expanding into Asia next year. All of the new recruits, moreover, would be investment professionals, since StepStone already provides back-office support.
This is another notable change from Clairvue, where the headcount was spread out among investment, finance and administration, and other staff. “Aligning with a larger platform allows us to focus on investing and managing investments, which is what we’re very, very good at,” said Giller.