While many private equity fund managers have chosen not to use them, the existence of placement agents has helped the education process in Europe. And for many fund managers the lack in good quality agents, which many see as vital for the evolution of the market, have made it harder for them to obtain business.
“There’s a lack of transparency in the marketplace and placement agents have an important role in first to educate investors and also to educate and standardise the private equity firms. The market I think would develop much faster if there were more placement agents,” says Stefan Marelid at SEB Investment Management in Stockholm.
Patrick Cook at 3I disagrees that the lack of placement agents is holding the market back and see the problem with the investors. "The pension funds themselves do not have the staffing levels capable to deal with this. If you had more placement agents all you would have is more placement agents being rejected by the pension funds than you have general partners being rejected!"
For US managers looking to break into the market, or for those managers who do not have an existing client base, the existence of a placement agents can save them time and effort in breaking into the European pensions market. DLJ, Merrill Lynch and BT Alex Brown with their extensive distribution networks have found the dedicated teams they have put to work on the areas of due diligence have helped their secure business. Hicks, Muse is one of the top five US houses, though lacks a substantial following in Europe and employs independent operator, Helix to sound out the market on their behalf. “They could devote attention and resources to working on an investor base here, so we have saved them an enormous amount of time because for 15 years we have been building a database in Europe" says John Barber at Helix in London.
The placement agents’ responsibilities include helping investors understand how value is created in the funds, where the risks are, why returns can be so high, how to differentiate between the different stories and strategies, how the funds are structured and the legal and tax implications. "It’s a complicated asset class to invest in," says David Johnson, head of private equity finance group for Middle East and Europe at BT Alex Brown in Geneva. He adds: "There is a proliferation of funds out there and the European institutional investor has relative-ly little experience in analysing and un-derstanding what the risks are. We try to help them focus on what matters."