Placement agents remain key to raising capital despite manager dissatisfaction over price and quality of service, according to Preqin data.
“The quality of these services remains a contentious issue for managers.”Established managers using placement agents from 2015 through July 2016 beat fundraising targets 63% of the time, compared to 41% of managers that did not use placement agents. First-time managers were also more likely to exceed their targets while using placement agents, with 40% of users surpassing fundraising targets compared to 29% of non-users.
“In such a competitive fundraising environment, the added expertise and assistance that these service providers can offer could make the difference in holding a successful fundraise or not,” said Christopher Elvin, head of private equity products at Preqin.
More than half (54%) of private capital funds closed so far in 2016 engaged the services of a placement agent, representing a steady increase since 2012, when 44% used agents. Of funds currently seeking capital, 47% have placement agents.
However, 36% of placement agent users switched service providers in the last year, with 67% citing dissatisfaction with quality of service.
“The quality of these services remains a contentious issue for managers, and they will be looking for assurances of effectiveness from their placement agents during their review processes,” Elvin said.
A fifth of managers said their placement agents had changed their pricing model since they were engaged. Of those who swapped service providers, 46% cited rising costs.
Yet only 29% of private capital managers said they believed fund investors were concerned by the increased cost of service providers—expenses typically passed on to investors through management fees.
Meanwhile, more than a third (36%) were unsure whether their investors were concerned.
“More dialogue is needed between parties regarding this issue, particularly given the large number of investors that have expressed concerns about fees,” the report concluded.
Source: “Preqin Special Report: Private Capital Service Providers”