What congestion in private markets means for placement agents

As fundraising hits all-time highs, firms are increasingly hiring multiple agents to suit bespoke needs.

As private markets continue to mature in developed and developing markets alike, the one-stop shop model for placement agencies is becoming complicated by GP resources and the disparity between increasingly connected global markets.

For starters, placement agents are busy. In conversations Private Equity International had with 12 placement agent firms for our October deep dive, all but two said they are the busiest they have ever been: they described themselves as overworked and juggling new mandates, secondaries opportunities and advisory work.

“The market has never been this congested and competitive, and I don’t think that’s going away,” said Warren Hibbert, co-founder and managing partner at Asante Capital Group. “It’s not a covid thing. It’s the cadence of fundraising cycles today, coupled with the extreme bifurcation between the haves and have-nots. The intensity of the competition is just higher than it’s ever been, combined with a significantly higher performance benchmark.”

One consequence of this congestion is an uptick in manager selectiveness. Whereas in the past firms may have been willing to roll up their sleeves and tell a difficult story, increasingly the tolerance for mandates that may be perceived as lower yielding has diminished.

Amid this backdrop, many placement agents have had to transform their businesses into financial Swiss Army knives to adapt to market conditions. GPs, too, have had a rethink on the way they use placement services.

After years of seeing bread-and-butter fundraising assignments dry up as large PE firms built in-house investor relations teams, placement agents are now seeing those same firms ask for help once more. The consensus among the placement agents PEI spoke to is that established GPs have enlisted more fundraising help in the past 18 months.

“GPs that would never have approached us – alarmingly large GPs with successful brands – have come to us and said, ‘We’ve got eight people internally, we’ve got 500 LPs, but we are worried we are not going to get the numbers we want’,” said FirstPoint Equity co-founder Julian Pearson.

The size and quality of established GPs looking for help in bespoke ways “has dramatically increased”, said Pearson.

Part of that story is logistical help – managing those 500 LP relationships, plus the data and paperwork required to maintain them – but another increasingly relevant part is geographic help. Mark Mason, founder of TransPacific Group, which raises Asian institutional capital for western managers, has seen a clear trend of more GPs moving away from single global fundraising mandates and instead engaging a small consortium of agents who specialise in specific regions.

Of course, the playbook for covering North American pensions for established managers is going to look quite different to that for emerging managers raising fresh commitments from Southeast Asian LPs. The coalition model is becoming more commonplace, a partner at an international law firm told PEI.

The flexibility allows GPs, with pinpoint accuracy, to utilise third-party marketers with deep ties to institutions in developing regions, according to Mason.

Covid has made having “boots on the ground” even more attractive, Mason added. Despite private markets becoming more comfortable with a hybrid or Zoom approach, in-person engagement adds value where language barriers and time differences persist.

“We have also seen many of these same GPs hire more staff to internalise fundraising in the developed markets of the West,” said Mason.

As these trends continue to develop, some of the functions divvied up between providers will inevitably prove more difficult for GPs to take over than others.