Having the right insurance policies in place might not necessarily be top of the to-do list when setting up a hedge fund. But to overlook this key business requirement is ill advised. Today’s hedge fund manager is under a barrage of different pressures from day one.
Regulation and compliance to bring a greater sense of order and transparency, as well as increased investor demand, are just two of these pressures. Poor business decisions, negligence, wrongful managerial acts have led to an acceleration in the rate of claims both on the manager and the hedge fund(s) they are advising on.
According to Sam Swadling, Business Development Executive at Willis, one of the world’s leading risk advisory, insurance and reinsurance brokers, “These claims may arise from a variety of sources and are increasing in their size. Given the high risk/high reward approach taken by most hedge funds, they leave themselves very much exposed to litigation from investors (and potentially counterparties) if things go awry.
Having the right insurance policies in place is therefore vital.
There are three main areas of insurance that a start-up manager should consider before going live:
Speaking with Hedgeweek, three members of the Willis team outline the main details of each of the above insurance packages. Sam Swadling focuses on financial insurance as part of FINEX Global, a division of Willis that covers financial, executive and professional risks insurances. Cathal Bracken advises on employee benefits in Willis’ Global Employee Benefits practice, whilst Patrick Duggan, Executive Director of FINEX Global, focuses on general insurance that a hedge fund manager should consider.
“We consider the nature of the relationship between the fund and the manager with respect to financial insurances. The general insurance and employee benefits insurance policies are aimed at protecting the assets (partners and staff) in London who are providing the advisory service to the offshore fund,” explains Swadling.
Part 2: Financial Insurance