12/05/2011

Hedge funds count cost of insuring against SEC lawsuits

As insider trading continues to dominate the hedge funds, ensuring that any prospective hedge fund investment is properly insured is becoming increasingly important to investors wishing to avoid any potential legal costs being paid out of their investment returns.

According to a benchmark study by SKCG Group, a risk management and insurance advisor, large hedge funds with over $10bn in assets under management (AuM) typically purchase $40m or more in professional liability insurance coverage, nearly 200% more than medium funds between $1bn and $3bn in AUM.

“Before the financial crisis, it wasn’t uncommon for large hedge funds to just eat the costs of investigations and lawsuits resulting from trading errors and other mistakes,” said Wayne Siebner, senior vice president and manager of executive and professional liability for SKCG Group, in a statement. “This simply doesn’t make sense anymore when the price of insurance against these costs has declined by as much as 20% in the last two years and is even more inexpensive to the largest funds who buy higher limits.”

Click here to download a PDF of the SKCG Benchmark Study of E&O/D&O insurance purchasing trends.