Survey: Many Asian Hedge Funds Shun Insurance Coverage

Jan 10 2013 | 1:23am ET

Asian hedge funds may be catching up with their Western peers in a lot of ways, but insurance isn't one of them.

Just 64% of Asia-focused hedge funds have policies covering directors' and officers' liability and professional indemnity, a survey by Citigroup's prime brokerage shows. By contrast, more than 80% of European hedge funds had such insurance, according to a survey last year.

Things are getting better: Asian hedge funds founded in the past three years have, on average, gotten insurance within five months of inception. Older funds took 1.6 years to do so, according to the survey; those founded before 2002 took seven years, on average.

"The adoption of management liability insurance by hedge fund managers in Asia-Pacific is being driven by an increasing understanding of personal financial liability associated with potential litigation," David Stanbridge, who works in Citi's prime finance advisory unit in Asia, told Bloomberg News. "Regulatory decisions provide additional impetus for managers to consider protection."

Fund size is a major indicator of the likelihood of owning coverage: Of the 47 Asia-focused managers polled, all of those with more than US$500 million in assets had insurance, but most Asian hedge funds have US$50 million or less. In the survey, hedge funds cited cost and potential impact on performance as the main reasons for not getting covered. Lack of investor demand was also noted.

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