So far, limited partners in the US have not pushed hard on registration when GPs come looking for money. But that could all change after lawmakers in Congress agreed to mandate registration with the Securities and Exchange Commission.
“This hasn’t been a fundraising issue so far. We’re currently representing six funds and this hasn’t been a problem,” said Alexander Leykikh, partner with placement and advisory firm Atlantic-Pacific Capital. Leykikh was speaking on a panel at the PEI Private Fund Compliance Forum in New York this week.
Registration will add more work to the fundraising job, as the PPMs and other marketing materials will have to conform to the compliance rules, Leykikh said. At least the first time around, crafting the fundraising materials will take some time to get right, he said.
There wasn't an hour when we didn't agonise about how to meet our investors' needs. The amount of work just helping existing investors tripled.
The two talked about the backlash over the past year against placement agents in the wake of public pension pay-to-play scandals.
Much of the controversy around placement agents stems from a misunderstanding of what reputable agents actually do. A reputable placement agent does more than simply ask for money – there is also an “advisory” role the placement agent plays that involves everything outside the selling of a fund, including preparation of marketing materials, assessing the strategic positioning of the fund and assisting in the process of due diligence requests, Leykikh said.
“We spend a lot of time with GPs advising them on the most effective positioning within their market sector and identifying the most appropriate investor group for their programmes,” Leykikh said.
Charlesbank closed its seventh fund last year on $1.5 billion, surpassing its $1.25 billion target in just five months. The firm did not use a placement agent, “but looking back at the long hours it took to prepare the materials, a placement could be helpful to some firms in this environment”, Thonis said.
“There wasn’t an hour when we didn’t agonise about how to meet our investors’ needs.” Thonis said. “The amount of work just helping existing investors tripled.”
In today’s tough fundraising environment, even existing investors will look at re-ups in the same way as they examine first time funds, Thonis said. Due diligence included performance attributes on “every investment we’d done. Had we done well because of EBITDA growth, debt reduction, multiple expansion? We had all that information, but still, when you have to package it all up and make it look right”, that takes a lot of work.