As intermediary functions go, that of the placement agent has to rank as one of the most awkward ‘middle-man’ jobs out there.
On the one hand, you are being courted by general partners (GPs) to raise their funds and make them as successful as can be. On the other, placement agents have to be very careful about which GPs they take on and whether the assignment will actually boost their bottom lines and prestige, or considerably dent them.
As Richard Anthony, chief executive of Evercore’s Private Funds Group, a London-based placement agent, openly puts it: “The only certainty in what we do for a living is that, if the fundraising is not successful, the placement agent always gets the blame.”
And even when you believe you’ve settled on the right type of fund to raise, you have to be able to tell hard truths to seasoned professionals, especially in today’s tough fundraising market.
“The role of the placement agent is to be pretty brutally honest with funds. My view is that we are not being hired to brush people’s egos. I think it’s too easy to tell GPs what they want to hear as opposed to the truth. But the only way funds are going to be successful in this environment is by taking an honest, hard look at themselves and responding to what the market is telling them,” he says, adding:
“Obviously, we are not arrogant enough to think we are always going to be right, but I think that’s where we can really help – just being really honest about the challenges.”
This forthrightness makes sense, especially when you consider that Anthony wants to shape Evercore’s nascent placement business into “one of the leading private funds groups, very much by a quality measure that can genuinely offer a global distribution capability”.
Evercore bought its Private Funds Group from storied asset manager Neuberger Berman in early 2010 and has been growing the business ever since, instilling it with the kind of global footprint Anthony envisages for the group. At the same time, Anthony, a veteran of collapsed US investment bank Lehman Brothers, has made sure the Private Funds Group is diversifying beyond geographies.
“One thing that we think differentiates us is we are not just largely focused on buyouts. I mean, we obviously raise buyout funds, but our heritage is from Lehman Brothers, and at Lehman Brothers we had the opportunity to raise across buyouts, mezzanine, real estate and infrastructure. We like that and we are very comfortable with those asset classes,” Anthony points out.
Asked for a rough split, he estimates Evercore’s placement business is 50 percent dedicated to private equity funds with 25 percent each dedicated to real estate and infrastructure funds. Infrastructure was part of Evercore’s game-plan from the start.
So what does Anthony look for in an infrastructure GP?
“We look for GPs with genuine experience and a genuine track record in infrastructure investment,” he begins. “That universe is very limited. If you actually cut right through it, people who have done infrastructure deals from investment through to exit are few and far between. What we look for is a credible team of people who have worked together for some time and have executed on an infrastructure strategy,” he explains.
“Secondly, we ideally want to see that a team has done at least one fund before – it’s a very high bar for us to consider a first-time infrastructure fund. So if it’s a second fund we want to see a reasonably strong track record for Fund I and also, importantly, a high percentage of re-ups. There are a number of second-time funds out there that have maybe done a mediocre job of investing and, as such, will only enjoy a mediocre percentage of re-ups. That’s a big problem,” Anthony states.
In addition to relevant experience, Anthony also needs GPs to have differentiating qualities. “What we are looking to avoid are ‘me-too’ funds. We need to be convinced that limited partners (LPs) are going to see something not necessarily unique, but clearly different about the fund that’s going to compel them to invest. Finally, we like niche plays,” he concludes.
It should come as little surprise to discover that Evercore’s first infrastructure fundraising – Private Finance Initiative (PFI)-focused Equitix – checks almost all of the boxes in Anthony’s wish-list:
“Equitix is our first infrastructure fundraising at Evercore and it’s been a terrific experience. I would say that many of the characteristics of Equitix are what we look for in other infrastructure fund managers. What was unusual about Equitix is that they were a team of genuine operators that could demonstrate a track record of execution in the PFI space. We found that very attractive. The team knew how to successfully bid and win projects and they understood their market intimately.”
At the time of writing, Equitix is putting the finishing touches to its second infrastructure fund, rounding off a fundraising that started life with a £150 million target and is now looking to reach as much as £350 million. Its first infrastructure fund managed to raise £104 million from UK institutional investors in early 2010.
Outside Equitix, Anthony is somewhat guarded about Evercore’s growth prospects for the infrastructure side of the business.
“We would like the infrastructure aspect of our business to be a significant part of it. However, some of that is dictated to us by the fact that we won’t raise conflicting funds at the same time – which already limits you to a certain degree – and then secondly it’s absolutely critical that we select funds wisely.”
He elaborates: “I want infrastructure to be a significant part of our business, but that will only be dictated by the quality of the funds we are able to originate. We are not just going to take on a fund so that we can say we are doing 15 percent of our business in infrastructure. Because at the end of the day, one of the most damaging things to us is a failed fundraise. That’s something we want to avoid,” Anthony stresses.
It’s understandable, especially since such failures hit more than placement agents’ reputations. “They are a significant cost to the business because ultimately we generate revenue through raising capital. If we are not raising capital, what we have just wasted is a ton of time and time costs money – lots of money,” Anthony adds.
Time is also a much more important commodity in the post-Lehman Brothers fundraising environment, Anthony believes:
“I think one of the big shifts after Lehman [collapsed] has been preparation. Preparation for a fundraise is now critical and that preparation – the earlier it happens before a fundraise the more effective [the fundraise] will be. In our experience today, GPs, particularly those looking to raise larger funds, will engage a placement agent a year or even 18 months before the start of a fundraise.”
“This gives us a nice period of time to properly gather data from the market on how funds are perceived, which can often be quite detached from how a fund perceives itself, and to really understand what investors are thinking about infrastructure and what’s important to them. That allows us to fine-tune and really target the fundraise so we can basically make sure the GP’s time raising is being used as effectively as possible,” Anthony says.
That’s partly why Anthony is also keen on limiting the number of mandates Evercore takes on. “We probably wouldn’t do more than 12 or 13 mandates across all strategies at the moment and we think that allows us to give our GPs a much greater level of focus. We don’t waste GPs’ time taking them to all corners of the globe to see investors who are never going to invest in their fund,” he explains, adding:
“I think we provide a much greater level of focus for GPs than some of our peers. By offering a very significant level of focus, the probability of success is heightened significantly. I’d like to think we give advice with integrity.”