The Placement Agent . . . helping slay the dragon

 

Photo credit: Wili Hybrid

A reader asks:  what fee does a placement agent charge?

A placement agent helps private equity firms raise an investment fund as quickly and painlessly as possible.  Some well known players include Helix, MVision and Probitas.  In Australia two boutique agents are active, Principle Advisory and Brookvine.

The best placement agents provide their fund manager clients with a wide range of services.  For example, most agents:

• Help define the fundraising strategy and address weaknesses in the story
• Develop the marketing materials such as the presentation deck and the PPM
• Coach the team on presentation skills to ensure the pitch is succinct but compelling
• Pull together fund due diligence materials and set up a data room
• Introduce potential LPs who have been qualified and are seeking to invest.  Importantly, the agent should determine the order in which LPs will be approached because some investors are more likely to lead a first close or bring a "market brand" to the fundraising
• Advise the manager on fund terms and assist in finding a middle ground with the LPs
• Play travel agent by scheduling roadshows, booking flights, and generally ensuring that the process is as efficient as possible.

In answer to your question:  placement agents get paid a lot.  They normally receive a percentage of the money they help raise . . .  2% - 2.5% is the typical range.  The fee paid will be lower if the agent does less for the PE manger (for example, just makes LP introductions). 

The placement fee is usually paid over a couple of years, so the GP can use management fees to cushion the cash pain.  Some agents take a portion of their fee in equity, that is, they reinvest it in the fund as an LP.  This is an increasingly popular model because it minimises the upfront cash drain on the manager and also closely aligns the interests of the agent with the investors that he has introduced.

Comments

[In the Wrong Business]

Wow. 2% of a $1 billion fund is $20m!!! That's a hell of a fee.

[Investing 101 For Dummies]

I have to agree with "In the wrong business". 2% of a large amount is still a large amount in and of itself. As for the model that involves taking a portion of the fee in equity, I think it's very good because it further encourages agents to introduce investors with a sound business. The more money that business makes afterwards, the more money the agent stands to make

[Chuck Spence]

Hi there

I am considering starting a placement agency in my home country, where there currently is none. It is a country with a similar nature to Australia economically.

I see at least have sprouted up in Australia. I am wondering if you could advise on what I would need to get started? I have some exp in PE just not fundraising.

ie - what made the australians ones successful? Because usually placement agencies are based in the biggest cities in the world (ny,london). do they only deal with australian investors and australian funds?

Maybe I should call up local GPs and ask if they need help first?

[GP]

Hi Chuck,
My sense is that the Australian placement agents have found it tough. Though there is a large pool of capital in Australia, the market here is quite concentrated with a handful of gatekeepers controlling most of the local LP money . . . so hard for a placement agent to add value.

I suspect they have been more helpful at
(1) Helping Aussie managers access international LPs
(2) Introducing overseas managers to the large pools of capital in Australia