New York-based investment adviser Insight Venture Management agreed to pay a $1.5 million penalty in settling with the Securities and Exchange Commission (SEC) for allegedly overcharging management fees and failing to disclose conflicts of interest regarding fee calculations.
Insight, which does business as Insight Partners, also agreed to pay $864,958 in disgorgement and prejudgment interest to impacted funds, which it has already satisfied, the SEC said in a press release Tuesday.
Insight agreed to a censure and cease-and-desist order in reaching settlement.
The details: From August 2017 through April 2021, Insight entered into limited partnership agreements (LPAs) with private equity funds it advised that included language regarding how Insight would charge management fees during the funds’ post-commitment periods, the SEC explained in its order.
“The LPAs for these funds stated that should Insight determine that a portfolio investment had suffered a ‘permanent impairment’ in value, Insight would remove an amount equal to the difference between the acquisition cost and the impaired value of the portfolio investment from the fund’s invested capital,” according to the SEC. When applying criteria to assess whether an investment was permanently impaired, Insight “did not correctly apply the funds’ LPAs in making a permanent impairment determination and, consequently, failed to accurately calculate the management fees it charged,” the agency continued.
Insight was also faulted for conflicts of interest by failing to disclose its permanent impairment criteria to its limited partners.
“[W]hen advisers employ fee calculation policies that create conflicts of interest, including permanent impairment policies, they must disclose those conflicts just like all other material conflicts,” said Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit, in the agency’s release.
Compliance considerations: Insight did not adopt or implement written policies or procedures reasonably designed to prevent violations regarding fee calculations, according to the SEC.
The agency said it considered Insight’s prompt remediation of the alleged violations and cooperation in determining to accept the settlement.
Insight did not respond to a request for comment. The firm neither admitted nor denied the SEC’s findings.
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