1. Risk. Reinsurance. Human Resources.
Aon Risk Solutions
Financial Services & Professions Group | Mergers & Acquisitions Solutions
Private Equity Liability Insurance
With the activities undertaken by a private
equity firm ranging from fund raising, deal
sourcing, evaluation, investment, financing,
executive recruitment, portfolio management
and exit execution, there are numerous different
stakeholders whose interests change and
evolve and any failure to serve these interests
could lead to disputes and ultimately litigation.
With a broader risk profile than any other
asset management class, the importance of
understanding, managing and protecting your
risks is greater than ever.
Risk of litigation comes from many
sources, including:
• Shareholders
• Minority shareholders alleging dilution of
interests in a portfolio company
• Buying shareholders in an IPO, alleging
securities violations
• Pre-acquisition shareholders alleging conduct
that devalued the bid price
• Portfolio companies
• Allegations of improper stewardship on the part
of the private equity manager
• Director and executive employment related or
unfair dismissal disputes
• In the case of aborted bids, allegations by
the previous target company, of breach of
contract or privacy on matters such as
intellectual property
• Limited Partners
• Fund raising misrepresentations
• Allegations of conflicts or preferment of interest
• Mismanagement of funds, particularly at time
of closing
• Court appointed administrations or liquidators
alleging statutory breaches on the part of the
private equity manager or its
appointed representatives
• Creditors who allege the private equity manager
or its appointed representatives incurred debts
when the company was insolvent
• Regulatory actions including tax or anti-
competitive (anti-trust) prosecutions.
A common risk mitigation strategy is to rely
upon indemnification agreements from Limited
Partnership Agreements (or similar) using
fund assets for the benefit of the private equity
manager, the general partner, investment
adviser and management. Limitations with this
strategy include:
• The ability of the fund to satisfy the indemnity
call (the liability may arise subsequent to the
closure of the fund)
• The impact the indemnity call would have
on the investment rate of return of the fund
and the manager.
Key Insurance Features
Insurance is an alternative risk transfer strategy
and is effective in addressing the risks of litigation
against the private equity manager, general
partner, investment adviser and management
committee members.
There are a number of insurance products
available to the private equity, venture capital and
broader asset management sector. Typically, these
insurance products cover risks associated with:
• Professional liability
• Directors liability including outside directorships
• Fund indemnification
• Internal and external fraud
In today’s increasingly complex business
environment it is critically important to establish
insurance solutions most closely aligned with
your company’s risk profile. Through our country,
regional and global network of offices, Aon is
uniquely positioned to offer risk solutions that
respond to these challenges.
We’re here to
empower results
To learn more about
how we can create
custom solutions for
your organisation,
please contact:
Justin McCarthy
+852.2862.4175
justin.mccarthy@aon.com
