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Placement agents gain currency in helping PE firms get funds

Placement agents gain currency in helping PE firms get funds

Mumbai: Guy Eugene is not as well-known a name in the Indian private equity (PE) business as, say, Renuka Ramnath, the former head of ICICI Venture Funds Management Co. Ltd, the PE arm of India’s second biggest bank.

But when Ramnath, in her new avatar as promoter of PE firm Multiples Alternate Asset Management, got Canada Pension Plan Investment Board (CPPIB) to invest for the first time in an India-focused offshore fund, it was Eugene, a so-called placement agent, who helped the Indian PE fund win the Canadian investor.

His tribe is growing. Placement agents, who help PE funds raise money from potential investors, are increasingly gaining in popularity in the country as limited partners (LPs) look to invest in a growing number of Indian PE funds.

Indeed, Eugene, who heads Legacy Finance Ltd, a Swiss placement firm, has in the past also helped India Value Fund, ICICI Venture and Avigo Capital find LPs, who are the primary source of funds for PE firms.

Ajay Relan, former head of Citigroup Venture Capital International (CVCI) who set up his own fund CX Partners, used UBS as a placement agent.

Other placement agents that have helped Indian general partners (GPs)—the managing partners of PE firms—include London-based Campbell Letyuns and Almeida Capital Ltd and US-based Monument Group.

Muneesh Chawla, managing director, Blue River Capital Advisors (India) Ltd, which used Almeida Capital in the second close of its fund, said placement agents serve as a good validation for PE funds as they conduct their own due diligence.

Placement agents help GPs refine their strategy and articulate their story to investors. They also introduce them to qualified LPs from across the world, such as fund of funds, pension funds, insurance companies and family offices and help the PE firm raise and close a fund.

“In India, we see a number of spin-offs or senior professionals joining other teams to raise a fund, several of these professionals have very good track records. However, the vast majority of general partners don’t have fund-raising experience," said Eugene, explaining why placement agents can play a critical role in India.

As Indian PE firms look to more dual-structure funds, placement agents are beginning to play a key role in finding and holding down overseas funding.

“As the fund-raising market has become more competitive, it has been increasingly important for GPs to effectively differentiate their strategies," said Charles Daugherty, managing partner, Stanwich Advisors Llc, a US-based placement agency.

“As a result, even the larger and more experienced GPs are using placement agents as they try to access investors globally," said Daugherty, who has met with at least 45 managers in India over the past 18 months.

Indian GPs need placement agents because most have limited track records given the nascent nature of the PE industry and, as a result, lack of sufficient evidence to demonstrate that they can identify good companies, perform due diligence, finance them, create value and then sell them to generate profits for investors.

According to Venture Intelligence, a research firm focused on PE and mergers and acquisitions, two PE funds raised $420 million (Rs1,873 crore) in the March quarter, compared with $1.33 billion raised by five firms in a year ago.

Speaking from the GP side of the fence, Ramnath said hiring a placement agent also brings a certain efficiency to the process.

“We do not know all the potential investors in the world and their investment priorities at that point in time," she told Mint. “They (placement agents) help us become broad-based so that we have (a) wide variety of LPs—some of whom may come in the first fund or may be in the second fund."

However, the work of placement agents is not getting any easier. As more companies fight for a shrinking share of the pie, it becomes hard for them to even set up meetings with LPs.

“It is a fact that it is getting harder to get the attention of LPs," said Eugene.

At the same time, Chawla of Blue River Capital pointed out that people sometimes have misplaced expectations.

“The placement agent won’t be primarily responsible for raising the fund," he said, adding that being referred by a placement agent brings some validation but does not necessarily affect the decision making process of LPs.

“We don’t really view a fund differently if it’s come through a placement agent or otherwise. You tend to develop your own point of view," said Praneet Singh, managing director, Siguler Guff India Advisers Pvt Ltd, a fund of funds.

Still, placement agents continue to be in demand. Sandeep Aneja, managing director, Kaizen Management Advisors Pvt Ltd, which is raising a $120 million offshore fund, intends to use a placement agent for its second close.

“While we are confident of achieving first close based on our relationships with the LPs, in the second close we may to look to capture HNIs (high networth individuals) and family offices which are keen to invest, but are in far flung places," Aneja told Mint.

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