More Hedge Fund Managers Buying Insurance

Jun 18 2012 | 1:48pm ET

Call it another form of hedging: the vast majority of hedge fund managers (82%) carry professional indemnity insurance, according to a new survey from Baronsmead.

That total is up significantly from 2010, when it stood at 64%.

The London-based risk consultancy says 93% of hedge fund directors are covered by directors’ and officers’ liability insurance (up from 86% in 2010).

Baronsmead said one of the main drivers behind this trend is the EU directive on Alternative Investment Fund Managers but that most managers already purchase more than the minimum recommended limit of 1% of AUM. Managers also stated that PI was now a requirement demanded by more and more investors.

In the case of D&O insurance, Baronsmead said issues like the inclusion of Irish and Luxembourg fund directors in U.S. litigation arising from Madoff exposures was a driving force behind increased purchases.

The survey found that the majority of managers have seen insurance prices fall over the past two years, but Baronsmead says that prices will begin to flatten as claims increase.

The top concerns for managers polled by Baronsmead were, perhaps unsurprisingly, performance returns and the ability to raise capital. The survey also noted that the structure and quality of insurance policies has become one of the items assessed during investor due diligence.

Managers complained of poor management and settlement of claims, including delays in payment due to policy structure. Managers were also irked by what they deemed excessive exclusions and the outsourcing of claims handling to third parties or regional offices.

Said Shyam Moorjani, Baronsmead managing partner, in a statement:

“Our report confirms that there is genuine concern by hedge fund managers in getting claims paid. The key to helping achieve this is a properly structured policy with insurers that have a good track record of paying a valid claim.”

Baronsmead surveyed 120 London-based hedge fund managers with combined AUM of over US$200 billion as well as representatives of nine leading hedge fund insurers. The results have been published in its Hedge Fund Insurance Benchmarking Trends 2012 Survey.


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