As a hedge fund manager insurance coverage is one of your key priorities. When considering options for directors and officers or errors and omission coverage, Owens Group Insurance states that setting a coverage amount strategy can make sure you are getting the best plan for your needs.
How Much Coverage Is Adequate?
Most firms average $1-$2 million in coverage if AUM is around $100 million. This coverage increases as AUM increases, with a coverage limit of approximately 1% of AUM for basic strategies. However, the need for coverage increases if the fund is using complicated, hard-to-value, or liquid strategies. Knowing your fund management strategy can dictate which insurance coverage limit you should pursue.
Total coverage: Best for those using strategies in which litigation is an extremely likely outcome. Purchasing coverage that will cover a robust defense, as well as settlement amounts, is critical for these fund managers.
Defense-only coverage: Best for those who expect litigation as a result of doing business. These fund managers have a straightforward strategy that is above board, minimizing the risk of settlements.
Bare minimum coverage: Best for those seeking to meet investor requirements while keeping insurance costs at a bare minimum.
Protecting the individuals and assets of the investment fund through adequate D&O and E&O coverage is increasingly important. Hedge fund managers can follow these simple guidelines to ensure they are selecting the appropriate insurance coverage for themselves and their funds.