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Third Party Marketing Contracts | Hedge Fund Marketing

Third Party Marketing Contracts

Third Party Marketing Contracts

While Hedge Funds may enlist prime brokers, or sometimes may have internal departments at their disposal to liaise with investors, Third Party Marketers (TPM's) provide the benefits of specialization and exclusivity to facilitate the connection between Fund managers and investors.

Although third party marketers usually require an exclusive agreement and 20% of earnings on assets raised, they provide services such as strategy and market positioning, market intelligence, identification of potential investors, creation of marketing materials and a slew of other benefits that maximize a fund’s ability to establish and maintain investor relationships.

A third party marketing consultant unlike a prime broker, can benefit the fund manager with global connectivity. Some third party marketers have offices throughout the world, allowing them to network with foreign investors at the local level. They also provide the advantage of their expertise on the respective countries' tax laws.

A third party marketer often may specialize in a certain fund strategy, allowing them to effectively target the investors most likely to gravitate toward that specific arena.
Such groups include

Family Offices
• Independent financial advisors
• Private banking networks
University Endowment Funds
• Pension and retirement plan investors
• Insurance companies
Institutional Investors

Also, an exclusive arrangement helps bolster the credibility of the fund, as investors have the convenience of dealing with only one third party marketing consultant and manager.

The contractual relationship between a third party marketer often stipulates:
  1. The third party marketer being licensed as a broker dealer with the SEC, FINRA and with the states it will pursue investors.
  2. Who the manager is, including everyone controlled by that manager in order ensure the third party marketer receives it full compensation from all relevant investors.
  3. Who the investor is- since the third party marketer must be compensated for ANY investment made within the term of agreement, this clause protects the third party marketers compensation.
  4. The exact nature of the compensation-must include all payments due to the third party marketer, including profits made post-termination derived from investments made during the tenure of the contract.
  5. Exclusivity-this involves not just the agreement to be mutually exclusive but also dictates the duration of the term.
Other Issues the contract should probably cover include:

• Indemnification
• Required disclosure of fund’s book along with record keeping five years past the date of termination.
• The exact nature of services the manager will provide the TPM.
• Full-disclosure and protocol for any issue and/or change affecting the manager.

Source referenced

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