Placement agent
A firm paid to introduce a fund to potential investors.
Placement agents run a fundraising process on the manager's behalf, usually for a fee tied to the capital they bring in. They are regulated in many places and often turn down funds that are too small or too new.
Placement agents typically charge a retainer plus a success fee of around 1.5 to 2 percent of the capital they raise, and the fund's LPA usually makes the manager bear that cost, often by offsetting it against the management fee. In the US, an agent paid on success generally needs to be a registered broker-dealer.
A good agent brings relationships, market feedback on terms and a disciplined process. Agents are selective, though, because their reputation with LPs depends on the funds they bring. Many will not work with a manager raising under a few hundred million dollars or without an institutional track record.
Worked example
A $300M Fund II hires a placement agent on a $150,000 retainer and a 2 percent fee on capital from LPs the agent introduces. The agent brings $90M from eight institutions, earning $1.8M, while the GP's own network raises the remaining $210M without a fee.
Common questions about placement agent
Should a first-time fund hire a placement agent?
Most first-time managers either cannot sign a reputable agent or find the cost hard to justify, so they raise from their own network first. An agent becomes more useful for later funds or when targeting institutions the team has no relationship with.
Who pays the placement agent's fee?
The manager does in practice. Fund documents usually require the fee to be borne by the manager or offset in full against the management fee, so LPs do not pay it twice.