Lucky 13: PA Schools narrowly approves commitment to Insight Partners fund

Pennsylvania Public School Employees’ Retirement System’s board narrowly approved a commitment to Insight Partners’ 13th flagship fund, with a dissenting voter expressing concerns about the manager’s performance and investment in failed cryptocurrency exchange FTX.

PA Schools board voted 8-6 in favor of a $130 million commitment to Insight Partners XIII, a rare divided vote from a public investment board on an investment staff recommendation. Buyouts watched a broadcast of the board’s June 9 meeting.

Pennsylvania Treasurer Stacy Garrity, who voted against the commitment, listed several reasons for her decision.

At the top of her list was the performance of the system’s investments in Insight Partners vehicles from 2017, 2019 and 2021. During those years, PA Schools made commitments to Insight Partners X, XI, XII and a Fund XII buyout annex fund, documents show.

“Insight’s performance has been challenged,” Garrity said, stating that these investments shifted from ranking in the first quartile to the third quartile based on their multiple of invested capital, a metric that typically measures cashflow generated from an investment.

According to a PA Schools investment memo, the system contributed $102.7 million to the 2018 vintage year Fund X, which has only resulted in $43.4 million in distributions. PA Schools has contributed $145.9 million to 2019 vintage Fund XI, which has only returned $300,000, the memo said.

The data is dated as of September 30, 2022.

However, these numbers do not reflect the valuation of assets these funds hold that have not been realized. These multiples look strong, with Fund X having a multiple of 2.4x and Fund XI having a 1.6x multiple.

According to data from CalPERS, which also invests in Insight Partners, Fund X is its strongest performing 2018 fund when incorporating unrealized valuations. Fund XI is also a top performer, CalPERS records show.

Garrity also mentioned Insight Partners’ investment in failed cryptocurrency brokerage FTX as a factor in her decision.

“Their comments about FTX did not inspire confidence,” Garrity said.

A source familiar with discussions said Insight Partners, PA Schools investment staff and board members spent hours discussing the firm’s investment in FTX.

“To say this was not adequately explained is surprising,” the source said.

In its recommendation, investment staff touted Insight Partners’ experience in investing in software-as-a-service and related companies.

“Insight’s success in executing its strategy begins with selecting the most attractive companies it identifies through its comprehensive coverage of the market and deep domain expertise,” staff said in its recommendation.

Insight Partners did not return a request to comment on this story. Spokespersons for board members Wendy Spicher, who serves as the acting interim secretary for the state’s Department of Banking and Securities, and State Senator Greg Rothman, directed the request to PA Schools

In December, a vote on a recommended commitment to Fund XIII was pulled from the investment committee’s agenda.

Fund XIII has a $17 billion target. According to a note from PA Schools consultant Aksia, Insight plans on investing in at least 150 commitments with check sizes ranging between $15 million and $500 million.

Investments through Fund XIII will be focused on North American companies with an enterprise value between $50 million and $2 billion, Aksia said.

PA Schools’ $130 million commitment will come in two parts, according to investment staff.

Of this total, $80 million would be a 2023 commitment to Fund XIII and possible sidecars. The remaining $50 million would require approval from the system’s asset implementation committee.

Correction: An earlier version of this story used PA SERS in reference to the Pennsylvania School Employees’ Retirement System. To avoid confusion with another pension system, the report has been changed with all references being changed to PA Schools.