But investors in Insight's technology fund -- so-called limited partners such as the California Public Employees' Retirement System and Yale University's endowment -- made nothing. They didn't participate in the investment in Photobucket, and weren't given the chance to do so.
"The investment was made in full compliance with the letter and spirit of all of Insight's agreements with its limited partners," said Ilan Nissan, a partner with O'Melveny & Myers LLP, a law firm that regularly represents Insight.
The windfall earned by Insight executives -- but not the firm's investors -- highlights a dicey game: fund executives who invest in deals personally, but not through the funds they manage. Private-equity, venture-capital and hedge-fund firms all wrestle with the potential conflicts of interest inherent when executives -- the so-called general partners -- invest in deals personally rather than through their funds."