Placement agents play a key role in the PE ecosystem. For LPs they are crucial counterparts. And GPs would do well to remember, you get what you pay for!
Few LPs can adequately cover any market
Placement agents can do much of the heavy lifting providing market intelligence and insights on countries, strategies, and managers.
Knowing both the LPs, and what they want, and the GPs, and what they offer, can save much wasted time and needless meetings.
Being sell side in a very long-term asset class, placement agents importantly live by their reputations and thus need to do bring a credible ‘product’.
But, LPs should remind themselves that placement agents are an important counterpart, like any other, and should be treated as such.
Few GPs have the size for a full-time internal placement agent function
Placement agents can handle the end-to-end fundraising process and save GPs much time.
They know the markets, the changes, the LPs. They will ‘open doors’ while ideally focusing the GPs' time on the the highest potential meetings and at the same time laying the foundation for the next fund.
They will also ‘herd the cats’ ensuring that LPs, which tend to distract easily, get over the finish line.
And, even for larger GPs with internal teams, placement agents can provide market insights on changes and new LPs and help them expand their LP base.
Placement agents are not created equal
Like GPs and LPs, placement agents come in all sizes and shapes and offer vastly different levels of service and fees. I maintain a crude ranking from 1 to 5.
‘Fives’
'Fives' being the ‘best’, have a sizeable regional and possibly global presence, low team turnover, and produce market insights / research. All of this makes life easier for LPs and makes for a deeper relationship.
'Fives' are some of the most knowledgeable PE market participants. They know the GPs and the markets the operate in intimately. And they know the LPs equally well, often having developed a personal relationship and some perspective on their portfolios and strategies. They are partners that I would interact with regularly and discuss markets and general gossip.
For ‘their’ GPs, ‘Fives’ will get a meeting even if the fit / strategy is maybe not quite right. In that way developing the GP/LP relationship for a future fundraise. They will also be able to anticipate and handle ‘harder’ questions and will keep meeting on track an focused.
‘Ones’
These are the ‘fly-by-night’ variants. At times just a one man team. At other times pure ‘sweat-shops’ allowing them to price their services cheaply but often with matching quality - shooting out emails but never really following up. They will often take on multiple GPs at a time, possibly with no thought to overlap or conflicts of interest.
I will most always meet with ‘Ones”. But I am skeptical as to what they are bringing. And cannot help but wonder, what decision making process led to hiring a specific placement agent.
For GPs, ‘Ones’ might get you meeting after meeting. But they rarely match GPs and LPs and thus not necessarily the right meetings. Once the door is ‘opened’ they ‘tune’ out – I have in fact seen more than one nod off – and the GP is left to sink or swim, without much background on the LP.
Most funds would do well to take on a placement agent, more on this in a future post. But remember also, that a placement agent is not a substitute for a good internal IR person, nor vice versa. And you get what you pay for!
Stay illiquid!
Kasper