Insurance: Vehicles want more insurance
But CDO managers are paying a premium, especially in the US.
The credit crunch and wave of credit hedge fund collapses has spurred hedge fund and fund of hedge funds managers to take out insurance or reassess their existing policies. Robert Kelly at London-based insurance brokers Baronsmead estimates that fewer than 10% of hedge fund managers in London have no directors and officers (D&O) cover. Under this cover, if investors are unhappy with a fund and seek to make claims against it, the directors’ assets will be protected. "Now, however, and in particular with the push to have independent directors, we are seeing managers take a closer look at the quality of their cover," says Kelly.
In the US, such insurance cover has been less widely used. Joe Ehrlich of US broker Owens Group says penetration is not what it could be because hedge fund managers, by nature, are comfortable with risk. "That said, certainly those who are having a harder time with their returns have started to think about insurance," he says.
Ben Hancock of Howden, a Lloyd’s broker specializing in hedge fund management liability insurance, says coverage for many hedge funds has been substandard. "Last summer made people think long and hard about their policies.