Third-Party Marketers and Placement Agents: A Boutique Asset Managers’ Path to Raising Capital
For many emerging asset management firms with growth ambitions, raising capital can be an exhausting endeavor. It requires an inordinate level of time, resources, marketing skills, and investor access. Which many fund managers don’t have.
To achieve the scale necessary to marshal big-time resources in an outsourced model, more firms are turning to placement agents to carry the weight of gathering much-needed assets. Finding the right partner can provide your firm with a valuable resource with the skills, expertise, and experience to do the things asset managers are unwilling or unable to do on their own.
What Do Third-Party Marketers and Placement Agents Do?
We play a pivotal role in helping boutique asset managers gain access to capital and achieve their asset gathering targets. Many have a dedicated sales force with deep industry connections among networks of institutional investors, financial advisors, and family offices. Working with these firms, asset managers can leverage their distribution capabilities to accelerate their penetration into the market more efficiently and with better results than if they tried to field their own sales force.
While we use the terms interchangeably in this article, third-party marketers and placement agents differ slightly in who they cater to. Third-party marketers tend to work with traditional institutional and retail- oriented managers that manage institutional portfolios, mutual funds and SMA’s.
Placement agents tend to work with alternative managers such as hedge funds, private equity funds, real estate funds, and more.
The firms target a subset of the sophisticated investment community such as RIAs, broker dealers, family offices, and institutional investors such as endowments, foundations, and other hedge funds.
Third-party marketers and placement agents generally provide essentially the same services. Their services often include:
Devising the sales strategy
Strengthening the story and the way the managers tell it
Calling on investors
Facilitating investor meetings and communications
Populating the databases
Creating marketing materials
The Real Value: Strong Investor Relationships
While placement agents may be highly adept at developing a sales and messaging strategy, the fundraise may never get off the ground if they don’t have a deep understanding of the investor landscape. The most significant value they bring is their strong relationships. Relationships are important, but it’s essential to find a third-party marketer or placement agent that specializes in the audience you want. Few have relationships with all types of investors, focusing instead on specific segments. Some third-party marketers might focus on RIAs, while others will focus on family offices or institutional investors. Hedge funds are the target of some placement agents, while private equity, foundations, or family offices get the attention of others. While there may be some overlap in these segments, few can raise money consistently in all channels.
They also know which investors are looking for specific strategies, such as emerging markets, real estate funds, smart beta, long/short, or other specialized funds. They understand which investors may be open to seeding opportunities or being among the first investors. They have access to fund allocators and gatekeepers, who are the actual decision-makers. They are constantly talking with allocators and gatekeepers to understand their portfolio needs and what they’re looking for in new fund relationships. Having keen insights on the current state of the market and industry trends, they can reduce risk by guiding their clients on the optimal timing to launch a campaign. Third-party marketers and placement agents will also use their deep personal networks and access to industry data to populate databases and collaborate with firms to set up meetings, webinars, and events where firms can meet potential investors.
How Are Fees Structured?
In exchange for their services, third-party marketers and placement agents may take a fee percentage, typically 20% of management fees or 2 - 5% of the raised capital. The fee may be spread over several years or in perpetuity. To ensure their clients have some skin in the game and are committed to a successful fundraise, they may also collect an upfront retainer, paid regardless of whether any capital is raised. Capital raise agents will sometimes request exclusivity or equity-based compensation.
While working with a high-caliber third-party marketer or placement agent can generate a solid return for an asset manager in the near- to intermediate-term, asset managers must be concerned with the bigger picture and how their firms are positioned for long-term growth. Most start with a multi-year engagement, with a specific asset gathering target over that time.
When It’s Not a Fit
The best placement agents and third-party marketers will sometimes say “no” to an engagement. If a firm is not a good fit for them, or your investment fund is too small or otherwise unsellable, the honest placement agent will turn it away rather than collecting a retainer and doing nothing. Before agreeing to take on a client, they will conduct due diligence on a firm and consider its pedigree and strategy along with the firm’s story and how they tell it. They want to know if there is growth potential and whether their investor relationships will take notice. They also look at the firm in the context of current market trends and fund flows, and whether the timing is right. They look at their existing client lineup and potential for new business which may be more sellable as well. It’s also important to know if a placement agent or third-party marketer is also working with another asset manager with a similar strategy as it could present a conflict of interest.
Take a Long-term Perspective
To successfully raise capital, the third-party marketer or placement agent must be able to open dozens of investor doors, which can be resource and time intensive. Managers must be patient and have a long-term perspective for the fundraise. The average fundraise can take 12 to 24 months. Firms without a successful raise in 24 months need to reevaluate.
How to Find the Right Third-Party Marketer or Placement Agent
There are hundreds of third-party marketers and placement agents. And they are not all created equal. Finding the best fit is critical for your firm. Here are the vital factors to consider in your search:
Look for a track record of success. Do they have successful capital raises? How many successes have they had with firms like yours? Can they tell you why some raises were and weren’t successful?
Look for a vast network of solid relationships. Who do they talk to? This is critical because some firms say they know investors but then bring in junior associates to essentially make cold calls. That can hurt their credibility – and yours. Find out who contacts the investors.
Ask them to share their progress with you. Do you have strategy and progress calls? Do you know who they are contacting and talking to on your behalf? You need to be assured they are always moving forward in the process and looking for opportunities.
Skin in the game. Some placement agents don’t charge fees unless they raise capital. While this may sound attractive to some asset managers, reconsider. Too often, asset managers will hire three or four agents when they agree to a fee based on results. Essentially, the placement agent is working for free, which often results in no real commitment. Unless there is a commitment on both sides, the relationship will fail – a waste of time for everyone.
Making the Most of the Engagement with Marketing
Third-party marketers and placement agents focus on what they do best – building and leveraging relationships to find an ideal match for their clients. Many asset managers could do more to advance brand, visibility, and credibility, such as developing an effective website, timely content, sophisticated digital strategies with actionable analytics, and third-party endorsements such as news coverage and speaking opportunities.
Clearglass Capital Partners can work collaboratively with third-party marketers and placement agents. The third-party marketer will drive the sales effort, while we navigate the marketing and public relations strategy in a concerted and coordinated effort.
We provide support in the following areas:
Enhancing the story and the messaging
Creating customized pitchbooks
Assist in developing a more robust website
Timely content creation – articles, videos, quizzes, and more that can be used to create engagement and leads
Digital strategies – going beyond email blasts to create sophisticated, digital engagement through emails and campaigns to generate inbound leads and leverage data analytics
Public relations to build visibility, credibility and to attract leads and accelerate the sales process
Asset managers with a good story to tell and want to grow could benefit from a relationship with a placement agent. But do your homework. They aren’t all created equal. Be sure they have capital raising successes, relationships with investors you want to get in front of, and a capital raising process that makes sense to you.