Dramatic increase in Professional Indemnity Insurance uptake among hedge fund

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According to a recent survey, hedge fund managers are increasingly seeking professional indemnity insurance cover to protect themselves against the risk of being sued if they fail to deliver the returns promised to their clients. In 2010, 64% took out professional indemnity insurance. This year it’s up to 82%.



What’s driving this desire for the protection of PII? One of the key reasons, it seems, is a concern that the requirements of the European Commission’s Alternative Investment Fund Managers Directive (AIFMD) will make it increasingly difficult to generate the returns that investors have come to expect. However, it’s not the only reason. In some cases, they don’t have a choice.



In passing judgement on the founder of collapsed hedge fund, Weavering Capital, and ordering him and his co-defendants to pay compensation of $450m, the judge accepted that there was no likelihood of them being able to raise such a sum. The significance of this was not lost on many investors who are now insisting that hedge fund managers have sufficient professional indemnity insurance in place before they’ll invest anything.