Should you use a placement agent on your next fund?

The pros and cons of in-house versus outsourced capital raising was debated at PEI's Investor Relations forum.

Whether GPs choose to go solo or hire a placement firm was the topic of debate last week at Private Equity International’s Investor Relations, Marketing & Communications Forum: Europe in London.

Much like LPs’ views on GP selection, sponsors only want top calibre placement agents.

“If they aren’t, it’s wasting your time. Finding a placement agent that knows exactly who in the LP universe you are a match for is actually the most valuable thing you can get out of it,” said Laura West, head of investor relations at UK mid-market firm CBPE Capital, speaking on one of the panels.

In the ‘going solo’ camp is European special sits manager Roundshield Partners, which had two main reasons against using placement agents. One was broadly utilitarian: no one knows a firm’s strategy as well as its own in-house IR team, said Kristina Kuhnke Denaro, who is herself RoundShield’s head of IR and business development.

The other reason involves cost. Agents typically get paid a retainer plus a percentage of capital raised. Kuhnke Denaro noted she felt strongly about the fee and would rather pay someone within the firm who would stick around after the fundraise. It can also get tricky when it comes to re-ups. According to Kuhnke Denaro, GPs shouldn’t pay agents for LPs continuing their relationship with a manager’s successor fund because the investment team has done all the work in creating the returns for the vehicle and building the relationship with the LP over a four or five-year period.

West, on the other hand, noted that on the project management side of things, it’s a no-brainer. Completing due diligence requests from LPs is much easier when it’s outsourced to an agent. Having them all year-round is also a benefit, especially for GPs with smaller IR teams, she said. Agents are also useful in extending the GP’s distribution capacity and coverage, especially if the preference is to tap specific geographies or investor types.

The evolution of the placement agent model was a theme both panellists found common ground on. Placement agents who have evolved their business lines typically do better than others – it’s no longer just LP introductions these days; it means advising on secondaries, co-investments and NAV facilities, to name a few.

Not all have done that. PEI broke the news about longstanding placement firm MVision Private Equity Advisers entering insolvency proceedings. Although the exact reasons for the firm’s administration are unclear, what’s certain is that the placement agent model is transforming. Those that rely solely on traditional fundraising and fail to add multiple business lines such as secondaries advisory, directs and GP company management advisory may not be around to see the next cycle.

An audience poll at the beginning of a panel found that the room was almost evenly split on whether placement agents can be useful. At the end of the 40-minute discussion, more of the room – 71 percent versus 57 percent – was in favour of using placement firms.

There are clearly pros and cons on why firms enlist the help of placement agents, particularly amid the tougher fundraising environment. What’s essential is that these firms adapt to remain real resources to GPs.