The two areas that are most commonly applicable to third-party companies are marketing and distribution. However, there are dozens of other activities that these companies carry out. There are certain areas that third-party distributors consider before they agree to collaborate with a hedge fund. This includes: For a hedge fund client, the activities of the third-party distributor depend on the background and size of the company and its client. The services of marketing companies include: Event-Marketing is a competitive industry. Stand out from your competition with this PandaDoc event marketing model! Capital raising is the most important part of the start-up process for hedge funds. If the manager cannot raise enough capital to cover the costs of setting up and operating the fund, the manager will soon be out of the business. Because capital raising is difficult and hedge fund managers cannot advertise in accordance with Regulation D rules, third-party distributors (3PMs) are often an invaluable service provider. At the same time, third-party distributors must also perform due diligence for a potential customer. If a hedge fund manager has a bad reputation, he could hardly think of the distributor who imposes it.
The marketing costs of third-party companies vary from 3 PM for each company. Most companies charge a fee for the asset investment, which is calculated as a percentage of the hedge fund manager`s fees – both on management fees, royalties or performance allocation. A tariff structure could be, for example. B, that the administrator pays the third-party distributor 20% of all administration and delivery costs he has collected for the assets generated by the third-party distributor. The above percentage will be higher for smaller funds (up to 50% or more), as it is easier (and more lucrative for the third-party distributor) to raise money for larger funds. Third-party distributors are companies registered with the SEC as broker-dealers and also registered with the securities commission of the registry`s resident state or states. These companies have contacts within the hedge fund industry and are working to raise funds for the hedge fund. All individuals who raise money for third-party marketing companies are registered as brokers, which generally means they have both the General Securities Representative Examination and the Uniform Securities Agent State Law Examination. Due to the intense participation and diversity of responsibilities assumed by a third-party distributor, the marketing contract can last three to five years.
Often, the service agreement contains a clause guaranteeing that the distributor will be paid even if the sale occurs after the distributor and the hedge fund client no longer cooperate. A third-party marketing agreement is used by investment companies, hedge funds and start-ups to direct-to-publicity to a potential client. Read 3 min The role of a third-party distributor is the increase in assets.