Private Markets 360° | Episode 39: Redefining the Placement Agent Model

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Chris Sparenberg [00:00:01]:

Welcome to Private Markets 360, where we explore the dynamic world of private markets. In today's episode, we're joined by Warren Hibbert, co founder of Asante Capital, a firm that is revolutionizing the placement agent industry. With over 25 years of experience, Warren has a deep understanding of the challenges and opportunities facing general partners and limited partners in today's fundraising environment. In this episode, we delve into the current state of the fundraising landscape, which Warren describes as the worst in 50 years, and discuss the significant bifurcation between top performing firms and others. We will also explore the increasing trend of spinouts from larger organizations and the importance of team dynamics for emerging managers and how Asante Capital is addressing the misalignment of interests in the placement agent model. Join us as we gain valuable insights from Warren on how to navigate the complexities of private markets and what it takes to succeed in this competitive space. Warren, welcome to Private Markets 360. It's great to have you.

 

Chris Sparenberg [00:01:02]:

How are you doing?

 

Warren Hibbert [00:01:03]:

I'm good, thanks. Chris, great to be on. Thanks for having me.

 

Chris Sparenberg [00:01:07]:

Wonderful. We're going to get started today with a bit of a backstory on your side. We'd love to hear why you started Assant Capital, the vision you had for the firm and how Assant is different from other placement agents in the market.

 

Warren Hibbert [00:01:19]:

Great. So 15 years ago, when we founded Assante, we were pretty clear amongst ourselves, the founding partners, around being honest with ourselves as to whether the market needed another placement agent. And the answer was pretty clear at that stage. We had effectively come from another independent firm which was a spin off from Merrill lynch, which is where the industry began in the 70s. And so we were very well versed as to what placement model is. And it's very consistent across at the time, across all our peers, which is that there are two distinct functions that operate almost completely independently. There's the sales or distribution function, and then there's the advisory and project management function. And the advisory and project management function is geared towards, dedicated to providing a service to their client, the gp.

 

Warren Hibbert [00:02:15]:

And the distribution function is providing a service to their client, the LP or investor. And so you've got two different client sets that you're delivering to whilst you're trying to achieve one goal. And what was very clear to us is there was this huge misalignment of interests, both from an economic perspective and an information flow perspective. Those that were closest to the gp, the proposition, the offering, were those on the project management side, principally out of New York and London. They knew the GP backwards. They understood the portfolio, they understood the team dynamics, and that's really what you need today to really get a proposition across the line with the investor. And on the distribution side, you had some great salespeople, but they'd never met the GP before. They knew their LP intimately, but they had never in many instances met the GP aside from a global kickoff call.

 

Warren Hibbert [00:03:10]:

And so they didn't have any sense for the portfolio in much depth. Certainly the dynamics within the team and the culture of the firm and the strength of the team. And so when trying to sell something to an lp, where in today's market there is a private equity firm in every city, town and village, everywhere in the world, and the essence of differentiating as to why you're working with the best manager in their space and sector and geography is essential. And if you don't have the tools with which to do that, you lose the sale on the phone call. Real time. It's a model that worked really well in the 70s, 80s and 90s where there were very few firms. Merrill lynch and co were predominantly raising for Blackstone, kkr, Apollo, and it was a case of just turning every stone. That model worked well in today's market and has been for the last two, three decades.

 

Warren Hibbert [00:04:08]:

That need to really be able to very clearly with the investor what the right to exist is for that GP is essential. And that's what we did in constructing Asante is what we said is let's go out and build a team that is geared solely at distribution with individuals, have a very good EQ and IQ balance. And what that means, in essence is we hired individuals who could have a very honest and in depth conversation with an investor around what's great and include the weak points around any GP that we're working with, but be able to differentiate them and position them relative to their peer set in the market and then effectively reverse that team into advisory. So have them then advising too. And that ensured that everything was done a in the most efficient manner possible. So there was no information disconnect. Those that were speaking to the LPs and distributing were advising the GP. And that real time strategy, which is essential for any fundraising, was able to be effective.

 

Warren Hibbert [00:05:18]:

So you could really strategize with your deal team real time as to how you were going to convert the investors on the roster. And that's positioned us well, it remains as an industry, one of the most inefficient in the capital markets, in my opinion. And so what we've done over the last 15 years is drive maximum efficiency into this segment of the market.

 

Jocelyn Lewis [00:05:40]:

Warren, thanks for that overview. Really appreciate it. As you were describing the role that you're playing, which is critical. It made me think of you being a matchmaker, really matching the gps with the LPs, vice versa, and also understanding what exactly each one is looking for, bringing to the table to then have those successful matches. Is that kind of one way to look at what you're bringing to the table?

 

Warren Hibbert [00:06:13]:

Yeah, yeah, it is, it is. In order to matchmake, you need to understand, you need to have the same individual or group dealing with both parties.

 

Chris Sparenberg [00:06:24]:

Right.

 

Warren Hibbert [00:06:25]:

In order to understand what one's looking for, you need to understand what the other is offering.

 

Jocelyn Lewis [00:06:30]:

Exactly.

 

Warren Hibbert [00:06:30]:

And you need to understand every element of what they're offering. And you. That can't. There can't be a go between system, There can't be any chance, in our view anyway. There can't be any chance for an information disconnect or broken telephone. And that's pretty much the rest. The way the industry was has always been geared and still operates today. Our model is absolutely exceptional in that there's no one else doing it and it's something that we're very public around.

 

Warren Hibbert [00:06:55]:

So it's out there. But the way in which it is orchestrated and calibrated is perhaps a secret source. But it's worked pretty well over the last 15 years.

 

Jocelyn Lewis [00:07:04]:

Absolutely right. And then you're removing that need for an extra game of telephone as well and really making the process efficient. Changing topics a little bit and focusing on the state of the market today. We've seen some spin out activity and also want to focus on the current fundraising environment. So knowing that when there are spin outs, there might be a cultural shift with a particular gp. For example, what are some of the key trends or implications of spin out activities that you and your team have noticed in the private markets?

 

Warren Hibbert [00:07:48]:

So if we're focusing on the teams from which the existing incumbent groups from which the spin outs are departing, that's obviously a challenge for them. And so perhaps what I'll do is I'll just dial back to where is the market today? What is the backdrop? And as Chris intimated, it is the worst fundraising environment in 50 years. Not only because there's a limited amount of capital out there and the figures are very clear in terms of how the market has reduced in size of overall funds raised per annum since 21, which is about a 40% drop, which is significant, very significant. So not only is there less dollars out there, but there is a massive bifurcation between the haves and have nots. So the bar for good to very good is very high today. So if you're a firm, an established player, where you have teams or groups of individuals departing, that's clearly not a good signal to the markets. In a market where the signals almost need to be perfect to raise. Today, your average fundraising period is 30 months.

 

Warren Hibbert [00:08:59]:

And that's basically from the launch of the virtual data room to final close. That's. That is insane. I remember a few years ago it was 17 months, which I thought was incredibly high. That number of 30 months just gives you, that stat, gives you just an indication of how dire the market is today. And that's obviously just the average. That said, we've seen and participated in a number of fundraisings in the last 24 months that have ranged between three and six months. So that there is just two ends of the spectrum in which this market is operating.

 

Warren Hibbert [00:09:32]:

So really long fundraisers, super quick fundraisers. And then what isn't spoken about because of survivorship bias are those funds that just aren't getting raised. And there's a. There's been quite a bit of public debate, discussion and articles on the extent of zombie funds materializing in today's market as a result. So, yeah, so doom and gloom. Not a great outlook. The world operates in cycles and it will come back. And we're seeing, to use the word green shoots, but we're seeing a lot more M and A activity and that's a good lead into markets improving.

 

Warren Hibbert [00:10:07]:

And we're obviously remain very optimistic as to, with respect to a market improving in the years to come, but there's nothing, there's no sort of line of sight to a near term improvement. And so in simple terms, going back to the point around the established firms who are having groups leaving, that's putting them into a very tough and challenging position. And they're leaving because it's one of not being incentivized enough. There's not much of a future because they've reached a sort of ceiling that they're battling to break through, and the economic incentives on the table are not strong enough to keep them with the firm, which would imply that the returns of the firm have either softened, gone sideways, have fallen quite significantly. On the flip side, a lot of those spin out groups who succeeding and clearly again, the survivorship bias in all of this are taking with them track records from circa vintage 2014 through 2020, and those are pretty strong vintages. So they're taking strong track records, they've Got a clean slate and it's realigned capital because they're having to put a lot of their money where their mouth is to build firms as opposed to simply raise funds. The alignment is absolute and there is a lot of interest today from investors in particular US Endowments to capitalize on this stream of first time fund activity which is creating a really interesting environment where many new firms are being spawned.

 

Chris Sparenberg [00:11:41]:

And then as we zoom out and look at the entirety of the market and the current, the ecosystem around fundraising, how would you characterize what we're seeing now? There are a million challenges and opportunities for managers, but what are the most common predictors of success? And why are some firms really struggling in the moment?

 

Warren Hibbert [00:11:59]:

So ultimately it's really simple. One of the first things that an investor does when they sit down for a pitch meeting is or an introductory meeting is they take the presentation and they scroll or they page through to the track record. And so the consistency of returns that have been delivered is crucial. It speaks to the lessons that team has learned and how they've applied the good to repeat the same patterns and processes through which that they can generate these returns in acquiring and building the businesses within their portfolios. And that fact pattern is really important. So there is a premium for consistency. But then the overall return returns need to be really strong. And I'd say the bar is high today only because there's a scarcity of capital and so invest and investors have a significant option value on the market today.

 

Warren Hibbert [00:12:58]:

There's just so many funds trying to raise capital that they can afford to pick and choose. And so those are getting raised have a very strong track record. Now that track record obviously doesn't just come about magically on its own. It's the result of a well honed strategy which within a defined geography and sector, group or single sector and then most importantly it's executed by a very strong team that has strong longevity within the team. They've been around for a while, they know how each other, each team member and co team member think they know exactly what good looks like within their region and sectors. And they're just executing and sourcing and executing better than anyone else out there. So those are really the ingredients. The actual sectors themselves are relevant to a degree as far as macro is concerned.

 

Warren Hibbert [00:13:55]:

But other than that, good investors out there are less concerned about macro. And that's a topic that we could chat about for hours on end certainly today. But most of most investors will go look, whilst macro is not irrelevant, we're really focused on a Bottoms up approach as to, you know, who are the best teams of investors out there to execute upon a strategy within a region because they will time and time again execute and deliver consistent returns through cycle. And so I say that's the, those are the simple ingredients. And when it comes to team, it's probably the easiest one to mess up as well. So if they can't keep hold the team together, incentivize the team, galvanize the team and create a really strong culture, that's really where the value of that firm begins to erode quite quickly.

 

Jocelyn Lewis [00:14:45]:

That makes a lot of sense where the track record is something that is really looked upon initially, but then looking a little deeper also the culture, how the different parties work together to continue to create those same results and having that consistency. So with all of that noted, Warren, what else do you think really drives success in today's competitive environment? Are there any key factors for emerging managers that they should be focusing on within today's market?

 

Warren Hibbert [00:15:31]:

There's a fairly long list of tools out there that should all be utilized and a lot of it comes back to technology use of data and analytics and making sure that you're capturing most importantly that data and using it. Particularly in this world of AI that we live in, there is a lot of lip service but we see relatively few firms galvanizing themselves around this, that that broad tool set alone with which to execute more efficiently and effectively. Ultimately, however, when it comes to a spin off team or a new firm today, making sure that they have brought together a team, a really strong team that have ideally worked together in the past, they understand how, as I'd mentioned earlier, how they each interact and how they're likely to react to various situations down the line and have that domain expertise within both their sectors and their regions. Those again, remain absolutely fundamental. Those are the most important attributes of a really strong team and it leads to the output is the returns they're able to generate. But, but yeah, I'd say in today's world, if you're not really focused on the application of technology and AI within your portfolio, and not just your portfolio, your business itself, the general partner, then you're absolutely missing a trick.

 

Chris Sparenberg [00:17:04]:

And as we think more about how the overall market is changing and evolving, we're seeing a lot of emerging strategies come to market. Are there any particular strategies or sectors that you think are gaining traction? Anything that may be the casual observer of private markets activity might be missing. When you see these new firms and funds come to market, how do you think the best managers are positioning themselves to take advantage of capital opportunities.

 

Warren Hibbert [00:17:32]:

What I would say again is that where teams have an area or where teams have an absolute right to exist because their domain expertise is such that their better than all of their peers within that sector and geography, it almost doesn't matter what sector they're in. That said, there are hot sectors today and they will be a different group of hot sectors in the next vintage. So hence with those cycles you want someone who can execute through cycle regardless of whether a sector is in vogue or not. But everything around AI today is obviously incredibly hot. It also means it's very expensive, right? So that it's. There's two sides to the coin as with most things. And so the likes of on the infrastructure side, everything around data storage, production all the way through, even the raw material side of things is very relevant and you bring that forward to the actual AI application and then more broadly down to the sort of B2B SaaS element which is has remained a very hot zone right across private equity for over a decade now. That's where there is a lot of interest from LPs.

 

Warren Hibbert [00:18:51]:

I say healthcare for sure. There's a delf, a dearth, should I say, of good healthcare managers in Europe and so there's a lot of interest in trying to discover new ones. There's a good stable group of healthcare managers across North America and there's emerging group of healthcare investors in Asia. But that is a very and will remain a very robust broad sector. And that's everything from advanced healthcare and even infrastructure through to bioscience, biotech and pharmacy. Yeah, I'd say that's a particularly interesting one.

 

Jocelyn Lewis [00:19:27]:

And Warren, we've covered a lot today, heard a lot about the different types of how the environment is competitive, some of the dynamics there. We talked about spin outs, emerging strategies, but we'd also love for you to comment on how you see the role of placement agings evolving in the coming years.

 

Warren Hibbert [00:19:54]:

Fundraising is something that GPS view differently. When you consider the full spectrum of gps, there's some who view it as an ancillary service to be tapped into every couple of years. And the day to day job is entirely focused on sourcing and executing deals within their portfolio. And there are others who view fundraising as 50% of what they do because without the capital they can't execute. And raising that capital is probably the most difficult thing, difficult task that GPS have by and large today. And so there's an opportunity I think for placement agents to really become an advisor integrally linked to their general partners. Whom they act, because there is a perspective that a placement agent has with respect to what the GPs and LPs are doing globally across regions and that's moving and varying day to day that no GP can really have. And so that perspective has a lot of value and can be harnessed to grow and accelerate that growth within those gps.

 

Warren Hibbert [00:21:09]:

So I'd say that's one. The other is data and technology. That's something that we're spending a lot of time on and have been for a few years now. And I think there can be a far better use of data in particular to try and again create efficiencies in what remains a very inefficient part of the capital markets. And then as it pertains to emerging managers, which is a very big part of the market today and a very relevant one, again, there are huge inefficiencies in that, in that segment and I think where there is an opportunity to act as both advisor and principal to accelerate the launch of those groups and the execution of their first few deals that effectively provide air cover, so to speak, for the remaining investors who will back them is an interesting opportunity. Suffice to say that there are a myriad of inefficient aspects to the capital raising side of the market, particularly on the primary side. The secondary side is actually creating significant efficiencies and where those inefficiencies can be taken advantage of and refined and new solutions applied I think will make for a far more efficient market overall.

 

Jocelyn Lewis [00:22:30]:

Absolutely. Looking for an efficient market for sure, but how we get there with the evolution of private markets would be interesting to see. Warren, thank you. It's been a fantastic conversation. Really appreciate you joining us today.

 

Warren Hibbert [00:22:49]:

Jocelyn and Chris, thank you so much. I've enjoyed that and thanks for having me.

 

Chris Sparenberg [00:22:53]:

Thank you.

 

Jocelyn Lewis [00:22:53]:

Warren, thank you for joining us for this episode of Private Markets360 where we had the pleasure of speaking with Warren Hibbert, co founder of Assante Capital. Warren shared valuable insights into the current fundraising environment, highlighting the unique challenges faced by fund managers and the increasing importance of alignment between general partners and limited partners. We explored the rise of spinout activity in the industry and how emerging managers can position themselves for success in a competitive landscape. Warren also provided a forward looking perspective on the evolving role of placement agents, emphasizing the need for specialized expertise and enhanced communication strategies. We appreciate you tuning in and hope you found this discussion as enlightening as we did. Don't forget to subscribe to Private Markets360 for more expert insights and trends in the world of private investments. Until next time.