Placement agents are seeing their roles expand as the private equity industry has been upended and fundraising has become more difficult.
The days of easy money are over. “It’s definitely harder because there are so many concerns,” Alicia Cooney, co-founder and partner at Monument Group, told Buyouts. “There are a lot of discussions on how and when to close, if they’re in the market, if they’re not in the market but considering being in the market, when to launch, how to launch. [Do you] tell people you’re coming to the market sooner so they can have a longer time to consider your opportunity?”
“If anyone says life is easier right now, I think they must not know what they’re talking about,” Cooney said.
Replacing face-to-face meetings
Placement agents, GPs and LPs are relying on video conferencing software such as Zoom to broker deals, a noticeable change for an industry where onsite and face-to-face meetings are an important part of the due diligence process.
“It’s obviously been interesting to transition from an environment where we travel extensively and meet face to face to a purely stationary and digital one,” said Christoffer Davidsson, partner at Campbell Lutyens.
Funds that are in the early stages of marketing are in a challenging position right now, according to Probitas Partners managing director Kelly DePonte. This stems from GPs’ inability to travel to meet with LPs to give their new fund pitches, and the pandemic lockdown preventing LPs from performing on-site due diligence on GPs they may like but don’t know well.
Despite the challenge of not having in-person meetings, GPs, LPs and placement agents have been working to close deals and ramp up fundraising efforts.
Around 65 percent of institutional investors say they’re still actively seeking investments, while 44 percent say they’re seeking investments, but focusing on re-ups, according to a recent survey from Probitas Partners on alternative investing. “It’s a little bit frictional having [LPs] get together to make decisions about going ahead with investments,” DePonte said.
Placement agents are spending as much time advising as they are fundraising, according to Cooney. “As long as the environment is in flux, GPs will value insight on how LPs are reacting. After things return to normal – whatever the new normal will become – GPs may value this advice less,” DePonte said. “I think in this environment GPs are more interested in strategic advice from agents because things are shifting rapidly LP by LP.”
Some larger GPs that have typically relied on their in-house investor relations to help raise capital for funds have turned to placement agents for assistance since the availability of capital has changed. “What larger GPs will do is they’ll come to us selectively,” Cooney said. “Once you need to put more effort out, they need to outsource additional expertise.”
Most sources believe fundraising will remain a tough prospect through the next year – a story of haves and have-nots. “Every time we’ve seen a market soften in terms of availability of capital for private equity that’s when the GPs say they need a placement agent,” Cooney said.
“The phone’s not ringing, people are not throwing money at them and they have to really work hard to raise capital again,” she said.