Our firm is a vendor to IMS/EFS and does
work with them, and directly with their clients. I have been
involved in insuring hedge funds for about 10 years, and include
clients such as Tiger Management
and Kingdon Capital Management in
the US.
We are frequently approached about directors & officers
insurance (D&O) for offshore funds. I must inform you
that while D&O is available, the preferred route is a
policy called 40ActPlus offered by Chubb Executive
Risk. The policy has been formulated specifically
for hedge funds to address the full range of liability threats,
including D&O, errors & omissions liability,
general partnership liability and fiduciary liability.
There are several reasons such a policy is necessary:
- Most standard D&O policies do
not provide entity coverage for hedge funds. This means
if both the individual directors are sued, as well as the
fund, there would be no coverage for the fund, or to defend
the fund. This is important.
- Most of the exposure with hedge funds lies in the errors
& omissions area, not with D&O. A standard D&O
policy would most certainly contain an E&O exclusion,
denying coverage if a suit alleged torts associated with
errors & omissions.
- The investment management company can be optionally included
under the 40ActPlus for an additional premium (usually 10%)
I would strongly suggest you complete the 40ActPlus application
and should you later decide you want only D&O, we can
"back down" to a D&O only solution. I see my
position as one of advisor/educator and try to make hedge
funds aware that D&O is usually only one part of the protection
and usually insufficient. On the other hand, Gracian may already
maintain E&O insurance or you may feel strongly that you
only wish to cover the individual directors.
Should you wish to complete the 40ActPlus application, please
return the following:
- Please complete sections I, II & III only of the 40ActPlus
Main Application and the Hedge Fund Application in its entirety
- Please include the following additional
documentation: offering memorandum/fund prospectus, schedule
of investments or sheet showing asset allocation, historical
performance (if not a new fund) and a brief description
of the fund investment style and amount of leverage used.
One additional note. One thing you should be aware of is
other hedge funds are allocating a portion of the cost of
the policy to the fund expenses, and choosing to include all
funds under the umbrella, rather than just the offshore fund.
Also I am aware we are asking for a lot of information, but
being that hedge funds are unregulated, insurance companies
are very careful in their underwriting.
I trust this provides an overview but I am available if you
have questions.
Regards,
Fred Gaston, CPCU
President
Gaston & Associates, Inc.
Tel: 914-244-1055 Ext. 118
Fax: 914-244-1056
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