Infrastructure fund managers face a crowded and highly competitive fundraising market, with as many as 152 funds currently on the road targeting $99bn in aggregate capital. As a result, fund managers need to be proactive in the fundraising market to avoid falling short of their targets and having to abandon funds altogether. With so many factors that could potentially hinder the fundraising process for infrastructure funds, hiring a placement agent could help funds reach a final close at, or above, their target size. Outsourcing the fundraising process also allows the fund management team to focus on sourcing and managing investments, while also allowing the firm access to the third-party marketer’s network of relationships with a wider pool of investors.
Placement agent use among fund managers has increased in recent years from 58% of funds closed in 2013 employing a placement agent, to 71% of funds closed in 2014. Of the 152 vehicles currently in market, 43% are known to employ the services of a placement agent, while the remaining 57% are raising capital via in-house teams – this figure is likely to change as more information becomes available. So just how big an impact does the use of a placement agent have?
As shown in the chart below, for infrastructure funds closed in the period 2012 to 2015 YTD, 51% of funds that utilized a placement agent closed above target, compared with 32% of funds that did not use a placement agent. However, the proportion of funds closing on less than half their target was lower for those funds which did not use a placement agent. It is also interesting to note how placement agent use varies with fund size. When looking at the same period (2012 to 2015 YTD), 75% of the funds that held a final close above $1bn did so with the use of a placement agent, while 83% of funds of less than $1bn were raised without an external marketer, suggesting that the majority of managers raising large funds are willing to enlist the help of placement agents, arguably more so than smaller fund managers.