Strike Three for Third-Party Marketers
Recently, third-party solicitors for hedge funds and private equity funds have been under scrutiny. The SEC is trying to ban placement agents and third-party marketers from working with state pension funds, and has successfully done so in New York. This is mainly due to the pay-to-play practices that have been used in recent years. Pay-to-play is essentially the payment of money, often through campaign contributions, in return for government business.
While the ban will clean up unfair practices, it also creates a difficult situation for fund managers that have traditionally relied on third-party services to introduce their funds to alternative investors. Identifying alternative investors that are interested in managers’ strategies is a time-consuming and tedious task-a task many managers do not have the time to perform. Even more time consuming is calling on potential investors. Placement agents and third-party marketers perform these functions for fund managers. However, due to scrutiny, state pension funds are shying away from having any contact with third-party solicitors.
The Brighton House Associates (BHA) model is a perfect fit for the current marketing environment. BHA is a neutral third-party firm that does not present investors with funds. Rather, BHA enters into conversations with investors with an unbiased approach. Analysts at BHA speak with investors on a daily basis and discuss their current interests, strategy searches, requirements, and investment mandates. Never during the conversation does BHA mention or introduce a specific fund. The only time an investor will hear from a manager is if their interests align with a manager’s strategy.
The current regulation under consideration is leaving public pension plans with the daunting task of finding the right funds, and managers with the time-consuming task of finding the right investors. Given the situation, it is beneficial for both to use a neutral party.