Why Use a Placement Agent?

Raising institutional investor capital on a global basis is a highly specialized, time-consuming process. With the increased appeal of alternative investment strategies among institutional investors luring more talented competitors into the field, fund managers have been forced to bolster their marketing efforts and make themselves more accessible to investors.  In addition, sophisticated investors and their consultants are demanding answers to increasingly sophisticated questions.  Rather than focusing on their core competency of portfolio management, general partners in fundraising mode have increasingly found themselves spending more and more time preparing marketing materials, planning and attending meetings with investors, and fielding numerous and detailed follow-up requests.

As a result, a growing number of fund managers retain placement agents to assist in the fundraising process, leveraging the fund manager's resources more efficiently and extending the depth and breadth of their penetration into the investor market.

Retaining an experienced fund placement agent offers the fund manager a number of important advantages.

Expansion of the Fund Manager's Investor Base
Generally, fund managers hire placement agents when they are interested in tapping funding sources beyond their traditional investor base.  This often occurs when a fund manager wants to significantly increase the size of its next fund, the manager is seeking to raise a different type of fund, or the manager is targeting a different universe of investors.  Placement agents are also useful to fund managers that have not been in the market for some time and, of course, first-time fund managers.

Fund Manager Avoids Distractions from Portfolio Management
A fund manager often raises a fund while still completing investment for one or more previous funds.  To avoid significant gaps in investment activity between funds, most partnership agreements allow the general partner to begin raising a new fund when at least 60-70% of the capital raised in previous funds has been invested.  Using a placement agent enables fund managers to spend more time on investing and managing a portfolio and less time on fundraising.

The bulk of the fundraising process – from initial structuring and marketing strategy through material preparation, solicitations, meetings, and investor due diligence requests – is transferred to the placement agent, thus allowing the fund manager to continue executing its fiduciary responsibilities in connection with existing uninvested capital commitments.  While managers will still devote significant time to attending meetings with prospective investors, most of the initial calls, organization of the process and follow-up work can be handled by the placement agent.

Assistance in Fund Structuring
Experienced placement agents provide much more assistance to the fundraise than simply introductions to potential investors. The placement agent will generally have a very current and in-depth understanding of trends in the alternative investment market through other assignments and ongoing discussions with active institutional investors.  This investor intelligence is invaluable, as it provides insights on investor allocations, the types of funds in demand, and appropriate fund terms.  Qualified agents can incorporate this market knowledge into important advice to the fund manager and its counsel for developing a fund product with structure and terms appropriate to current market conditions.

Strategic Planning and Premarketing
The placement agent can play a leading role in structuring the fund, advising on optimal timing of the fund's launch, and developing a customized marketing strategy.  The agent can advise fund managers on how to position their funds in the marketplace, what kinds of terms and conditions are reasonable, and what information must be prepared for presentation to potential investors in their private placement memoranda, presentation books and other marketing materials.  An important step in this process is the premarketing phase, where the placement agent can vet the proposed fund offering with its strongest LP relationships for first-hand feedback on the likely market reception to the fund's timing, size, structure, terms, and effectiveness of the marketing pitch.  Based on early market feedback, subtle adjustments can often be made to the fund offering to improve the likelihood of a smooth fundraise once the official launch takes place.

Access to Investors and their Consultants
Through its ongoing market presence, relationships, and investor research, the placement agent will have access to many institutional investors that the fund manager may never identify.  The experienced placement agent will also have extensive working relationships with consultants and gatekeepers critical to the investment process for many of the largest institutional investors.  The placement agent's knowledge of the steps necessary to open these important doors at the outset of the fundraising process benefits the fund manager and avoids potential missteps throughout the process.

Credibility with New Investors
A fundamental way in which the placement agent develops credibility with investors is through a reputation for bringing to market attractive, well-structured funds managed by top-tier fund teams.  Investors will avoid pursuing funds that have a non-market structure or terms, as the work involved in negotiating revisions to such factors is typically beyond the timing and personnel resources that the investor is afforded to fulfill its annual allocation to the asset class.  The agent that can guide the fund manager early on in developing appropriate structure and terms adds significant value to the process.

Sophisticated investors prefer to see fund offerings from placement agents that are known for fully vetting a fund offering before it is brought to market, as well as for responsiveness to investor queries throughout the process. One of the most important aspects of the placement agent's work, therefore, is to conduct up-front due diligence to the level of the most exacting investor before the fund is launched.  Busy investors that receive numerous fund offerings each month will prioritize those offerings introduced by placement agents with consistent, professional processes and stable teams whose senior placement professionals exhibit candor and judgment they trust.

Coordination of Investor Due Diligence
The placement agent assumes most of the burden of following up with investors and their consultants, identifying and resolving any issues that might keep them from ultimately investing, and facilitating their investment decision-making process.  Experienced placement agents understand the many steps required, and the potential missteps, in each stage of the process.  Professional project management is needed at all times to maintain marketing momentum, to follow up with investors, and to provide accurate and comprehensive responses to all investor due diligence questions and requests.  Handling the bulk of the work in RFPs and questionnaires from consultants and gatekeepers has become an increasingly time-consuming demand on the fund manager's resources; therefore, selection of a placement agent with demonstrated ability in this area is critical.

Ongoing Investor Relations and Fund Planning
A successful fundraise followed by ongoing investor relations can go far in setting the stage for securing commitments from existing investors and further expanding the investor base.  Throughout the fundraising process, a placement agent will raise investor awareness for the fund manager and ensure the manager's “brand name” becomes more recognized in the marketplace.  After the final closing, the placement agent can continue managing the relationship between a fund manager and new investors.  While investment performance is the key measure of success, sophisticated investors also need to be provided with up to date information on the fund manager's activities, with responses to questions and concerns delivered on a timely basis.  A placement agent is well-positioned to ensure that this ongoing investor relations work is managed effectively.  Through these efforts and its continued market presence with other fund offerings, the placement agent can assist the fund manager in looking ahead with advice on firm development and resolution of any potential issues that may be raised by investors in the next fundraise.