Journal of Financial Services Research

, Volume 48, Issue 3, pp 263–287 | Cite as

Costliness of Placement Agents

  • Marko Rikato
  • Ales S. Berk


In this paper, we provide original evidence on the economic role of placement agents as the financial intermediaries between general and limited partners in private equity. Our research is based on 902 private equity funds raised over the period of 1990 to 2011. This data shows that general partners hire placement agents to provide funding for approximately one tenth of the private equity funds they manage. The multitude of services provided by placement agents adds value to both general as well as limited partners. We find a positive impact from the placement agent’s relative fees on a fund’s performance. Similar to other financial intermediaries, the costliness of the placement agent decreases with the investment amounts committed by the limited partners. The fee levels are determined by negotiations with a general partner as well as by the phenomenon of free riding. Further, we find that placement agents do not take advantage of the heterogeneity of the fund’s returns and the potentially high benefits of successful investment picks. Namely, they predominantly prefer to charge their clients fixed fees. We conclude from our findings that limited partners succeed in picking better performing funds because they invest relatively higher amounts of their available allocations of private equity into the funds that yield higher returns.


Financial intermediation Placement agent compensation Private equity 

JEL Classification




We thank Ludovic Phalippou, David K. Musto, Gregory-Allen Russell, Paul Calluzzo, Janis Berzins, Jonathan Moore and the anonymous reviewers of this journal. We also thank the discussants in the research seminar at University of Ljubljana Faculty of Economics, the 25th Australasian Finance & Banking Conference, and the 2013 Midwest Finance Association Annual Meeting for valuable comments and suggestions about how to improve our work. All mistakes remain ours.


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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.PricewaterhouseCoopersLjubljanaSlovenia
  2. 2.Faculty of EconomicsUniversity of LjubljanaLjubljanaSlovenia

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