Over time, placement agents have been increasingly used by private equity fund managers: 43% of private equity funds that closed in 2008 used a placement agent, compared with 65% of funds that closed in 2017. This trend appears to be continuing, as 77% of funds closed in 2018 so far have utilized the services of a placement agent, 63% of which have exceeded their original target size. Typically originating from investment banks or as one-man rolodexes, the most sophisticated placement agents now offer a suite of services ranging from assisting with fund marketing to acting as strategic advisors in the early stages of a first-time fundraise.
There are a record 2,954 private equity funds currently in market, indicating intense competition for investor capital. Experienced fund managers are looking to placement agents to help them develop innovative strategies to stand out from the crowd, while placement agents can lend credibility to first-time managers in securing cornerstone commitments and building fundraising momentum. More than half (54%) of funds in market are currently using a placement agent, a number that is likely to increase given that some managers choose to appoint a placement agent part way though the fundraising process.
Placement agent-assisted funds closed in 2018 so far have spent an average of 11 months in market, compared to 15 months for funds that closed without the help of a placement agent. Placement agents not only help with a quick fundraise: 69% of first-time managers that hired a placement agent exceeded their original targets, a feat accomplished by only 17% of first-time fund managers that did not use a placement agent.
Placement agents offering additional services beyond capital raising have more scope to convey their value-add and build ongoing relationships with GPs, e.g. providing ongoing investor relations services, which can potentially lead to securing repeat business come the next fundraise. Of the private equity funds currently in market or closed since the start of 2017 with placement agent-assisted predecessor funds, 57% renewed their agreement with the existing placement agent, and 43% have appointed a new placement agent or have decided not to use one at all.