RIA Compliance Blog
On June 20, 2023, the U.S. Securities and Exchange Commission (“SEC”) issued an order against Insight Venture Management LLC (“Insight”). The SEC and Insight settled the matter to resolve allegations that the adviser charged excessive management fees caused by the adviser’s inaccurate application of its “permanent impairment” policy and that the adviser failed to disclose a conflict of interest related to these fee calculations.
Insight is an adviser that advises private equity funds. Limited partnership agreements (“agreements”) associated with some of these private equity funds stated that Insight charged management fees during the funds’ post-commitment period—the period during which a fund manager manages and looks to exit funds’ investments—based on the investor’s pro rata share of the funds’ invested capital. The agreements further stated that if Insight determined an investment suffered a “permanent impairment” in value, the adviser would remove an amount equal to the difference between the acquisition cost and the impaired value of the investment. This amount would be paid from the funds’ invested capital, which would in turn reduce the basis used to calculate fees paid by the fund to Insight. The agreements allotted Insight discretion to reverse the “permanent impairment” determination if the investment increased in value thereafter.
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