Insight Equity Inching Toward Fund Target

Dallas-based turnaround firm Insight Equity has closed on $361 million for its second fund, a $500 million effort it entered the market with almost a year ago, according to a regulatory filing. If that sounds like a teeny tiny improvement over the firm’s last close, that’s because it is. Just a month ago, Insight Equity closed on $312.5 million. If this seems like an insignificant development to report, that’s because it is.

Fundraising news is very, very slow these days.

Regardless, with the help of UBS as its placement agent, Insight Equity has garnered commitments from the likes of Arkansas Teacher Retirement System, Alameda County Employees’ Retirement Association, West Virginia Investment Management Board, Los Angeles Fire and Police Pensions.

Despite the difficult fundraising market, Insight Equity’s slow go of it may be self-inflicted. The firm’s actions don’t exactly reflect that of a humbled buyout firm acting with awareness of the current economic environment. An environment in which firms lower their carried interest, fees, and fund targets, and generally respect the limited partner’s exercising of their new found “power of the purse.”

Rather, Insight Equity went to market last fall, just before the crash of AIG and Lehman Brothers, with terms that can be called ambitious at best and at worse, greedy. First of all, the firm doubled its fund size. Insight Equity’s first fund had $300 million in commitments, so with $361 million in commitments, the firm has likely exhausted all potential re-ups. Meanwhile the new fund has a waterfall carried interest plan which allows the firm’s general partners to collect greater than the standard 20% return on deals which earn more than 2.5x their investment. The carried interest on deals earning 2.5x to 4.5x is 25%; that jumps to 30% for any deal returning more than 4.5x the fund’s money.

Insight Equity is also slogging away at its first foray into sub-debt, a $250 million mezzanine fund. The firm has raised $111 million from 30 investors for that effort, up from $99 million last month. And speaking of heavy-handed terms, we heard at one point that Insight was “strongly recommending” that new investors commit to both the mezzanine fund and the equity fund, a request that is sure to trigger disapproval from today’s newly emboldened investors.