How are placement agents compensated?
What is a Placement Agent?
A private placement agent is a firm that assists fund managers in the alternative asset class and entrepreneurs/private companies that are seeking to raise private financing through private placements. The agency’s employees are registered representatives of a broker/dealer and comply to a set of standards to ensure compliance while marketing these investments. According to Luke Powell at Elan Alternative Group, compliance is of the most important aspects to consider when an agent approaches an investor.
Luke Powell has been a registered representative for over 16 years and has extensive experience navigating the regulatory aspects of being a placement agent. Over the past six years, the regulatory environment for placement agents has become quite cumbersome and it’s important to ensure the registered representative is associated with a reputable broker/dealer. Luke Powell holds his licenses at Growth Capital Services which has been a registered broker/dealer for over sixteen years.
When a fund manager is considering to hire a placement agent, it’s important to also ensure the broker/dealer has enough experience navigating compliance. Luke Powell has found that his broker/dealer has the appropriate systems in place to ensure the highest of standards will be met when it comes to marketing a private placement.
How are Placement Agents compensated?
At Elan Alternative Group, there are many different structures that can be negotiated depending on the actual investment Luke Powell or another placement agent will be focused on. For example, Luke Powell states that for a traditional Hedge Fund capital raise, the placement agent or Luke Powell will charge a percentage of the management fee and a percentage of performance fees. These fees are typically associated to only approved investors that the fund manager has met through the introduction of Luke Powell or the hired placement agent. In addition, it should be noted that all fees flow through the broker/dealer prior to the placement agent or Luke Powell being paid for the capital raise.
As it relates to Private Equity, Luke Powell states that the fee structure in much different then Hedge Funds. For a Private Equity raise, Luke Powell and other placement agents typically charge the client any where from 1% to 4% on committed capital depending on the history of the fund. For more established funds that may be raising a third or fourth vintage the fees tend to be closer to one or two percent and for emerging managers the fees tend to be in the three to four percentage of capital committed. Luke Powell has traditionally worked with private equity fund to take the fees over a realistic time frame that works for the client. Again, Luke Powell reiterates that these fees must be run through a broker dealer.
If you have an interest in learning more about how placement agents earn their keep, please contact Luke Powell at Elan Alternative Group.