Smaller asset managers confront many of the same management liability risks as large, public corporations. The difference is smaller-sized asset managers may not have the resources to survive an investigation by the Securities and Exchange Commission (SEC) or defend against allegations such as breach of fiduciary duty.
According to Advisen, of the largest directors and officers liability (D&O) losses from cases recorded since 2012 involving small asset manager firms, losses above the median insurance limits purchased by these firms totaled $650 million. Twenty cases involved losses that exceeded the company's average annual revenue. Viewing errors and omissions (E&O) losses in the same manner, almost $440 million of losses were above the median insurance limit and 14 eclipsed its revenue.
Private company asset managers should consider purchasing management liability insurance. Many options are available as a sound risk management tool to provide coverage for the vulnerabilities that arise in this industry and help firms stay in business. In the event that litigation arises, such policies can provide coverage for defense costs in order to help defray the significant costs associated with litigation.
CNA has launched a new Asset Manager Professional and Management Liability policy form. The following coverages are offered in a combination policy: Investment Advisor Professional Liability, Investment Advisor Management Liability, Mutual Fund Management and Professional Liability and Hedge Fund Professional Liability. Tom Ruck, vice president, CNA Asset Manager Program, was recently featured in an Advisen article, titled "Private Asset Manager Risk: Small firm does not mean small claim." (Registration required.)