Third Party Marketing is a service offered by marketing firms who specialize in promoting investment opportunities offered by hedge funds.
These firms produce marketing materials such as pitch books and financial presentations, analyze investment performance statistics, and manage customer relation. Third party marketing is important to the hedge fund industry because of the regulations that keep hedge fund managers from advertising their funds directly to investors.
For start-up funds, these firms are an important player in the process of raising capital and growing the investor base. Third party marketers provide portfolio managers with the resources to reach out to potential investors that the fund simply would not be able reach on their own.
Third party marketing firms serve as a bridge between fund managers and potential investors and expand the marketplace for hedge fund investments. They can offer introductions and comparative analysis risk, performance and fee structures. If they have earned the investor’s trust, their services provide increased investor confidence in the hedge funds which they represent.
In exchange for these services, third party marketing firms charge a percentage of the fees received from assets invested as a result of their efforts. It is important to note that the firm is paid for by the fund not the investor.
This percentage is negotiable but is typically about twenty percent. The percentage also varies based on the size of the hedge fund, as smaller and start up funds will require additional effort to bring new investors on board. In addition, third party marketing firms may also charge a monthly retainer which may take the form of equity in the hedge fund itself, in essence giving them “skin in the game.”
Another type of firm offers a service known as “capital introduction.” These specialized firms will introduce potential investors to funds based on their own reputation. However, making the introduction generally is the extent of a capital introduction firm’s service offering. Third party marketers will often work with the investor to further evaluate the fund, help get the deal done, and provide consultation services over the life of the investment.