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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