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32 REALDEALS 7 May 2009
Whichever Way you look at it, the
private equity fundraising market is dire at the
moment. After a few years of feasting, when funds
had no sooner announced they were raising money
than they were oversubscribed, we’re now seeing
one almighty famine. LPs’ cupboards are bare.
“Most investors had spent their allocations for
2008 by April last year,” says Mounir Guen, chief
executive of MVision. “We closed ten funds in the
first quarter. But the money that was supposed
to come back to investors in the autumn never
materialised after the collapse of Lehmans. As a
result, we’ve seen a hiatus over the last nine
months in which we’ve seen very little fresh capital.
Allocations are only now being set because
investors needed to see the December valuations.”
Added to this is the prospect of some firms,
especially those in the mega bracket, reducing
the size of their latest funds. TPG and Permira
lead the pack, but there will be more.
placementagents
Wrong time, right placementWith the 2009 fundraising market undeniably desolate, it might be reasonable to assume that placement agents are in for a tough ride – not so, according to those on the ground.Words vicky meek
Others, meanwhile, will do everything they
can to preserve capital so they don’t have to go
out on the road in one of the worst fundraising
environments the industry has ever seen.
“Those that have been looking at raising since
last September have largely chosen to delay,”
says Janet Brooks, managing director at
Monument Group. “Such a small percentage of
investors will be writing cheques – and those
that are will be writing smaller ones – that
anyone not forced to fundraise would do
better to wait until conditions improve.”
You might be tempted to think that the picture
is bleak for placement agents, relying as they do
on fundraising for their income. And for some, the
current environment will be tough, with lay-offs
expected. “The main point in everyone’s mind at
the moment will be that the pipeline is reducing,”
says James Coleman, partner at Deloitte’s fund
placement advisory group. “But the market will
come back and when it does, good placement
agents will be well placed. The key is getting
through the next year or so.”
Hard to killYet there are unlikely to be many firms
disappearing altogether. Like their private equity
clients, placement businesses don’t die easily
because of the way in which they receive their
fees. “We may see one or two placement firms
go under, but not many because revenues are
split between a number of years,” says Coleman.
“So even if a firm doesn’t book any money this
year, it will still have positive cash flow from
previous years. Bonuses will be down and
some people may be made redundant, but I
don’t think we’ll see a clear-out.”
In fact, placement agents and observers of the
market are reporting much greater interest from
GPs for their services precisely because of the
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www.realdeals.eu.com REALDEALS 33
tough fundraising environment. “We are in
significantly more demand from established GPs
than a couple of years ago, when many were happy
to raise capital themselves,” explains Andrew
Bentley, partner at Campbell Lutyens. “When
competing even for existing investors is as tough
as it is today, good advice on strategy, positioning
and communication, and additional bandwidth to
manage a fundraising process is more valuable.”
“We’re seeing some interesting groups come
to us,” agrees Brooks. “These are GPs who
recognise that we are now in a new world order.
They want to ensure that, even if they are not
asking for money now, they can get in front of
LPs and start building some kind of relationship.”
Top-tier groups such as TA Associates, which
have never considered using a placement agent
before, are now using their services. Many of these
groups are firms that have previously raised capital
from once sure-fire sources such as endowments
and public pension funds, but now find these
investors hamstrung by their own problems.
“We are seeing a number of groups that have
never used a placement agent before hiring them
opportunistically,” says Ralph Aerni, CIO and
head of private equity at SCM. “They are awarding
partial mandates to help them raise funds in new
geographies or from LPs with whom they do not
already have relationships. This is true of even
some of the best names in the business, firms that
have never had to go into fundraising mode before
– they are now facing the pressure and appointing
agents for introductory meetings as they realise
they will have to tap new sources of capital.”
Over the years, placement agents have come
to act as much as advisers than introducers. Some
firms are even targeting this market specifically.
Amala Partners, established last year by former
Helix Associates veterans, is one example.
“We’re seeing firms that wouldn’t normally hire
placement agents consider doing so in an effort
to cast their net more widely,” says Amala partner
Ian Simpson. “We’re also seeing firms that will
raise a similar size fund to last time, primarily from
existing LPs, but that are using placement agents
for advice rather than introductions – they know
that they need to get their message absolutely
right in an environment of scarce capital. This
latter camp is the area that we are targeting.”
Branching outPlacement agents are also using their knowledge
to go into other areas. Players such as Campbell
Lutyens and Triago have long been operating in
the secondaries business, matching GPs to new
sources of capital, and others are following suit.
“Some agents are moving into the secondaries
market niche,” says Aerni. “It offers almost no
risk and is project-based, so you can work on
these assignments when there is no fundraising
to be done. It makes sense.”
And with all the doom and gloom in the
buyout and venture industries, it’s easy to forget
that there are some other opportunities for
fundraising. “We’ve been diversifying our product
base into areas such as infrastructure funds,
emerging market funds and mezzanine to take
account of LP appetites there,” says Mark
Cunningham, managing director at Helix
Associates. “We’re also looking at secondaries
and credit funds. There is always appetite for
some kind of private equity investment, which
means that we can participate in different parts
of the market even though activity as a whole
is well down on previous years.”
In fact, some agents say they are hiring.
MVision is among them. “We have an opportunity
to gain market share,” says Guen. “There are some
fantastic people out there. We can build on our
position and blend different types of strategy.
We have a broad geographic spread and are
strong in emerging markets – our Hong Kong
office is especially busy. In Europe, we are
working on distressed debt and credit funds,
while in the US there are opportunities in the
turnaround and sector-specific fund space in
areas such as energy and healthcare.”
New facesDespite some departures from the industry –
particularly those linked to large financial
institutions, themselves in distress – and
specifically Citigroup’s placement business,
believed to have recently left the market, there
have even been some new arrivals. Some
corporate finance houses are establishing teams
in an attempt to shake up the market. Deloitte
set up its team some years ago, but there are
others now in the running. US corporate finance
house Greenhill took on the Lehman Brothers
team, for example, and Catalyst Corporate
Finance is launching a global placement service.
“There are strong parallels between the
corporate finance and placement markets,” says
Steve Currie, partner at Catalyst. “Both have
been guilty in a buoyant market of dumbing
down their value-add. Corporate finance houses
got lazy with auctions in sending out investment
memoranda to hundreds of buyout houses
without properly scoping out the market. The
placement business has faced the same problem.
Historically, GPs would pay placement firms a
fee for access to their black book, but nowadays
anyone can gain access to database services.”
Catalyst’s idea is to invest alongside GPs
to demonstrate to LPs it has some skin in the
game. “For us, this isn’t about a fee for a one-off
transaction,” explains Currie. “We will be working
with LPs and GPs beyond the ten-year lifespan of
a fund. Rather than basing our fee as a percentage
of the amount raised, we will be looking to,
for example, provide some start-up capital to
first-time funds. It’s a good test of whether a
placement agent thinks they will raise a fund or
not, rather than taking on half a dozen mandates
and hoping three will pass the finish line.”
Some are doubtful about the success of such
ventures, particularly in a tough fundraising
environment – many point to the fact that
relationship-building with LPs takes a long time
and that corporate finance houses will need to
invest heavily in getting the right people on
board. “As an LP, when you get a call from
certain placement agents that have represented
excellent funds in the past, you’ll arrange a
meeting; when you get a call from someone
you’ve never heard of, you won’t even take the
call,” says Aerni. They also suggest that such
moves come from a lack of M&A work – a charge
refuted by players such as Catalyst.
Whether there is room for any new players is
yet to be seen. With predictions of up to 40 per
cent of buyout firms disintegrating over the next
few years, traditional placement work may be thin
on the ground. The most savvy agents are certainly
like to be picky about which mandates they take
on – none of them wants to be stuck with funds
they can’t raise. But these are the players that
have seen the writing on the wall. They have
diversified into other areas and so should survive
and prosper from the new world order.
vicky meek is a freelance business journalist.
placementagents
Wrong time, right placement
the gp vieWarguably one of the most successful fundraisings of recent times has been eci partners’ ninth
fund, which closed at £30m above its £400m target at the tail end of last year.
eci managed the process itself, although it did initially look at using placement agents.
“We decided not to use them for a number of reasons,” says Jeremy lytle, who is responsible
for the firm’s investor relations. “We had managed to build a number of loyal investors over
our last funds and felt there was a lot of continuity with them. one of the potential problems
with using placement agents is that you end up with tri-partite conversations and there can be
some grey areas that cause confusion. talking directly to lps avoids this.”
the firm launched two weeks before the collapse of lehman Brothers, but still closed within
three months of launch. “it didn’t feel good at the time,” says lytle. “But we already had some
momentum and we’d briefed investors well in advance of our fundraising, so they were expecting
us to be out. i think lps appreciated the fact that we were consistent and did what we said we were
going to do. there were inevitably a few surprises in that some lps who had backed us in the past
found they couldn’t, but with the benefit of hindsight we were right to stick to our timetable.”
palamon capital partners, on the other hand, is a strong proponent of using placement
agents. it has used them for its two funds – on the first it hired Donaldson lufkin Jenrette and
on the second credit Suisse, which by then had acquired the DlJ team. “in a crowded market,
good placement agents are invaluable as they will ensure your placement memorandum reaches
the top of a big pile on lps’ desks,” says annette Wilson, investor relations director at palamon.
“in a market like today’s, a good one should be able to give you a realistic assessment of what’s
happening and where the pockets of money are. they should be able to give you the bad news,
but they should remain sanguine and advise you on the best course of action.”
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