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Abstract: 

Hedge fund managers manage and hedge against risks every day. However, like the proverbial shoemaker’s children, the officers and directors of these firms may not be appropriately clothed in the insurance protection necessary to hedge against the litigation and regulatory risks associated with this business. As the industry faces heightened regulation, hedge fund managers and directors should reassess their professional liability insurance coverage now to determine whether they are adequately protected against potential losses that may be incurred in investigating and defending against future claims brought by regulators and investors. This article first discusses the risks of loss in connection with regulatory claims and investigations, and other legal risks to fund directors or managers, and then describes the types of insurance policies commonly sought to insure against those risks and points out the factors to be considered in analyzing coverage.

Keywords: SEC registration; regulatory agency investigations; D&O policy; E&O policy; disclosure; imputation of knowledge; prior knowledge exclusion; defense costs

Affiliations:  1: Attorney at Law; 2: New York Life Insurance Company.