Tech giant Insight Partners sets sights on secondaries

The firm joins a growing list of blue-chip investment firms wanting to get in on a growing secondaries market.

Insight Partners has joined the likes of TPG and Brookfield Asset Management in managers expanding their operations to take advantage of a booming secondaries market.

The $31 billion technology investor sought approval from limited partners in Insight Venture Partners XI to remove the 5 percent limit on the proportion of commingled interests it can buy, according to a memo written by Donald Kendig, retirement administrator for Fresno County Employees’ Retirement Association.

The proposed amendment would also remove from the LPA a “fee offset” provision, which states that Insight cannot invest in commingled funds unless the extra fees are offset against carried interest or management fees.

“Already in the life of Fund XI, there have been two opportunities which Insight has captured, where they were able to buy secondary holdings of mature venture capital funds. In both cases, the fees were able to be offset or there were no additional fees, and the return on both investments has been 2x,” Kendig wrote in the document dated 4 November.

He recommended that consultant Hamilton Lane approve the amendment on FCERA’s behalf, concluding that the impact would likely be immaterial given the pension’s commitment size of $10 million.

TPG last year hired CPP Investments’ head of secondaries Michael Woolhouse to launch a secondaries investment business, while Brookfield has been building its own secondaries business initially focusing on real estate. The Toronto-based firm is set to expand across infrastructure and private equity secondaries this year, as sister title Secondaries Investor has reported.

The limit on Insight Partners’ Fund XI was put in place to reduce blindpool risk and to prevent LPs from facing a double layer of fees. Insight said in the document that it would only buy funds that were 75 percent committed, at the end of their investment period or “perhaps continuation investments for pre-existing commitments” to allay fears.

Venture Partners XI raised $9.54 billion by April 2020 from LPs such as Louisiana State Employees’ Retirement System, San Francisco Employees’ Retirement System and State of Michigan Retirement Systems, according to PEI data. It is not clear if the amendment has passed.

Insight is also raising a $1.25 billion fund to invest in its own portfolio companies. Insight Venture Partners X Follow-On Fund will make primary and secondaries investments in portfolio companies held by 2017-vintage Insight Venture Partners X, according to a document prepared by consultant Hamilton Lane for Teachers’ Retirement System of Louisiana.

“Many Fund X investments are presenting attractive follow-on investment opportunities beyond Fund X’s capacity,” the document noted.

It is not clear if the secondaries strategy involves targeting direct stakes in its portfolio companies, LP stakes, or both.

The follow-on fund has a GP commitment of 3 percent and can invest up to 25 percent in a single company. Forty-nine percent of the investments made by Insight since its foundation have been minority stakes. Its portfolio is 86 percent weighted towards North America, according to the document.

It is not clear which investments are in Fund X.

Fund X raised $6.31 billion by final close in July 2018 to invest in high-growth software businesses as well as e-commerce and internet services. Limited partners include the California Public Employees’ Retirement System, CPP Investments, Massachusetts Pension Reserves Investment Management Board and Pennsylvania Public School Employees’ Retirement System, according to PEI data.

Hamilton Lane declined to comment. Insight did not return a request for comment.