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Study Finds Larger Hedge Funds Buy More Insurance

A new study was conducted on how hedge funds purchase insurance and how much they are paying for it. The findings show that larger hedge funds $10 billion or more AUM tend to purchase more insurance than smaller hedge funds. Furthermore, large hedge funds pay less for their insurance than smaller funds.
The study of 250 hedge fund insurance purchases shows large hedge funds typically purchase $40 million or more in professional liability insurance coverage, nearly 200% more than medium-sized funds.

SKCG says that, dollar for dollar, the bigger funds pay less for their coverage. It also says that strengthened regulation and “heightened investor expectations” make it impractical for larger funds to pay out of pocket for the costs of trading errors, investor and SEC lawsuits, and investigations.

“Before the financial crisis, it wasn’t uncommon for large hedge funds to just eat the costs of investigations and lawsuits resulting from trading errors and other mistakes. This simply doesn’t make sense anymore when the price of insurance against these costs has declined by as much as 20% in the last two years and is even more inexpensive to the largest funds who buy higher limits,” said Wayne Siebner, senior vice president and manager of executive and professional kiability for SKCG Group. Source

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