A private placement agent or placement agent is a firm assisting fund managers in the alternative asset class (e.g.,
private equity
Private equity (PE) is stock in a private company that does not offer stock to the general public; instead it is offered to specialized investment funds and limited partnerships that take an active role in the management and structuring of the co ...
,
infrastructure
Infrastructure is the set of facilities and systems that serve a country, city, or other area, and encompasses the services and facilities necessary for its economy, households and firms to function. Infrastructure is composed of public and pri ...
,
real estate,
hedge funds
A hedge fund is a pooled investment fund that holds liquid assets and that makes use of complex trading and risk management techniques to aim to improve investment performance and insulate returns from market risk. Among these portfolio techniq ...
, and
venture capital
Venture capital (VC) is a form of private equity financing provided by firms or funds to start-up company, startup, early-stage, and emerging companies, that have been deemed to have high growth potential or that have demonstrated high growth in ...
) and entrepreneurs/private companies (e.g.,
start-ups and
growth capital
Growth capital (also called expansion capital and growth equity) is a type of private equity investment, usually a minority interest, in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets ...
companies) seeking to raise private financing through a so-called
private placement.
Background
The placement agent acts as an intermediary between those seeking to raise money and those who may be interested in investing. They are typically mandated by
fund managers. A few placement agents are structured as groups within large
investment banking
Investment banking is an advisory-based financial service for institutional investors, corporations, governments, and similar clients. Traditionally associated with corporate finance, such a bank might assist in raising financial capital by und ...
firms, but more frequently as separate boutique investment banks, sometimes captive to an Alternative Asset management group or specialist fund marketer.
Placement agents will often seek to raise capital from a variety of
institutional investor
An institutional investor is an entity that pools money to purchase securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, government-linked ...
s (e.g.,
pension fund
A pension fund, also known as a superannuation fund in some countries, is any program, fund, or scheme which provides pension, retirement income. The U.S. Government's Social Security Trust Fund, which oversees $2.57 trillion in assets, is the ...
s,
insurance companies
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect ...
,
endowments,
funds of funds, and
sovereign wealth fund
A sovereign wealth fund (SWF), or sovereign investment fund, is a state-owned investment fund that invests in real and financial assets such as stocks, Bond (finance), bonds, real estate, precious metals, or in alternative investments such as ...
s) as well as
family offices
A family office is a privately held company that handles investment management and wealth management for a wealthy family, generally one with at least $50–100 million in investable assets, with the goal being to effectively grow and transfer w ...
and
high-net-worth individuals. Some placement agents have an exclusive focus on a particular type of
institutional investor
An institutional investor is an entity that pools money to purchase securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, government-linked ...
such as US pension advisors for corporate and public
pension fund
A pension fund, also known as a superannuation fund in some countries, is any program, fund, or scheme which provides pension, retirement income. The U.S. Government's Social Security Trust Fund, which oversees $2.57 trillion in assets, is the ...
s.
Placement agents are most often compensated through fees based on the amount of money raised (success fee) or supported by the fund or company they are actively representing (retainer fee).
Agents are distinguished from
underwriter
Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liability ...
s in that the former are only intermediaries.
Functions
Within the context of
fund managers, placement agents can serve several functions:
*Raise investor commitments to new
private equity funds – which might include targeting specific investors all the way down to a full service (advisory and marketing services).
*Other services such as:
**Strategic advisory
**Marketing: creating marketing materials such as investor decks, coordinating roadshows and meetings with investors, answering due diligence questionnaires (DDQs) and request for proposals (RFPs)
**
secondary market sales of investors'
private equity
Private equity (PE) is stock in a private company that does not offer stock to the general public; instead it is offered to specialized investment funds and limited partnerships that take an active role in the management and structuring of the co ...
funds interests for placement agents with a dedicated
secondary market
The secondary market, also called the aftermarket and follow on public offering, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. The initial sale of ...
advisory practice
Within the context of private companies, placement agents typically focus on raising the following types of financing:
*
Equity financing for
start-ups and
growth companies
*
Mezzanine capital
Mezzanine capital is a type of financing that sits between senior debt and equity in a company's capital structure. It is typically used to fund growth, acquisitions, or buyouts. Technically, mezzanine capital can be either a debt or equity ins ...
* Specialist financing such as government loans
Bibliography
*Wilmerding, Alex. ''Deal Terms''
References
{{private equity and venture capital
Private equity
Venture capital