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WHY USE A PLACEMENT AGENT?

Competition for investment capital is keen in spite of increasing investor allocations to private equity. Fund managers retain a placement agent to more effectively penetrate the private equity investment community and to better communicate their investment capabilities and experience. As a fund manager becomes more established and successful, a placement agent can also be used to assist the manager in moving beyond its traditional investor base. However, using a placement agent entails costs in the form of retainers and success fees, and many prefer to work on an exclusive basis. Therefore, a fund manager should choose carefully among placement agents to ensure a proper match in terms of coverage and capabilities while avoiding potential conflicts of interest.
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Fund Manager can Focus on its Core Business of Investing and Portfolio Management

A fund manager often raises a fund while still completing investment for one or more previous funds. It is generally acceptable to begin raising a new fund when at least 60-70% of previous funds have been invested in order to avoid significant gaps in investment activity between funds. A substantial portion of the fund-raising process, including structuring, can be transferred to the placement agent, thus allowing the fund manager to continue executing its fiduciary responsibilities in connection with existing uninvested capital commitments.

Assistance in Pre-Marketing, Structuring and Packaging of the Fund

A placement agent does more than make introductions to potential investors. The placement agent will generally have a very current and in-depth understanding of the state of the private equity markets through continual discussions with private equity investors. This investor intelligence includes information on allocations, types of funds in demand, appropriate fund terms, etc., and can be used to help a new fund manager client develop and structure a suitable fund product.

Diversification of Investor Base and Establishment of Credibility

A placement agent develops credibility with investors through a reputation for bringing to market attractive, well-structured funds managed by good fund teams. Therefore, one of the most important aspects of a placement agent’s work is to do as much due diligence as would any investor when selecting a fund manager client and to do a thorough job of structuring and packaging a fund before bringing it to market.

Expedite Achieving a Final Close

Placement agents understand the many steps, and the potential missteps, involved with achieving a final close. The entire process requires constant management to keep up marketing momentum, to follow-up with investors, and to keep focused on the fund-raising goal. A placement agent can preempt many of the mistakes often made when fund managers make direct approaches to private equity investors to facilitate faster, more effective execution. In the end, a placement agent can save a fund manager substantial time and expense.

Investor Client Management Services

After the fund close, placement agents can continue to manage the relationship between a fund manager and its new investors. While investment performance is the key measure of success, also important is providing investors with current, relevant data on the fund’s activities and responding to their questions and concerns on a timely basis. A placement agent is well positioned to ensure that this attention to investors is managed effectively.

Establish a Basis for the next Fund

A successful fund-raising followed by ongoing investor client management can go far in setting the stage for getting return investors and expanding further to capture new investors for the next fund. A placement agent not only provides critical support for these tasks but also can assist the fund manager in looking ahead to the future.