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The Importance of Placement Agents to Private Equity Funds – July 2015

The average time taken to raise a private equity fund has remained steady so far in 2015 at 17 months, the same as 2014. This is a reduction from the 18-month average of funds closed in 2013, which Preqin’s Fundraising Momentum tool shows to be the longest average period to complete fundraising since 2010. In the years following the financial crisis, the average private equity fund has consistently taken more than 12 months to reach a final close. Evidently, fundraising is a time consuming process and, as a result, many GPs utilize placement agents, calling on their services in order to secure LP commitments.

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The percentage of private equity funds using placement agents has stayed relatively stable, fluctuating between 43% and 53% of closed funds each year, as shown in the chart above. So far in 2015, 51% of closed funds have used a placement agent, an increase of four percentage points compared to 2014. However, of the 2,267 private equity funds currently in market, a lower proportion (42%) has appointed placement agents to assist in raising capital. Preqin’s Funds in Market online service suggests that some advantage is associated with using a placement agent; of funds that have closed so far in 2015, 54% of those that enlisted a placement agent closed above target, compared to 44% of those that did not employ an agent.

A shortage of resources or a lack of fundraising experience prompts many first-time fund managers to lean on the full range of services placement agents provide, including fund structuring and creating marketing materials. However, the cost of recruiting external service providers may not be manageable for all maiden funds to bear. Preqin data shows that only 38% of first-time fund managers on the fundraising trail are using a placement agent, compared to 45% of funds being raised by more experienced firms.

Geographical analysis shows that placement agent utilization varies very little by fund manager location. Of funds with managers based in North America which have closed since 2008, 47% used placement agents to assist with fundraising. For funds based in Europe, 49% used placement agents, while 46% of funds based in Asia and Rest of World used the services of placement agents.

Of all placement agents tracked by Preqin’s Funds in Market database, New York-headquartered Park Hill Group is helping to raise capital for the greatest number of private equity funds currently on the fundraising trail: 17 vehicles with a collective target of $12.1bn. California-based firm Probitas Partners is currently assisting a smaller number of funds, but with a higher aggregate target of $12.8bn.

Keywords: private equity fundraising, funds in market, placement agents, first-time funds