Protection offered to fund directors as policing environment gets tough

The landmark judgement, laid down by the Grand Court of the Cayman Islands, found two independent directors of a failed fund guilty of ‘willful neglect’. The case against the directors of Weavering Macro Fixed Income Fund Ltd, which collapsed in 2009 and had been listed on the Irish Stock Exchange, highlights the exposures faced by these individuals, Willis suggests.

Willis’ new Fund Protect policy attempts therefore to address such exposures, including the event of a fund’s collapse.

The policy offers an additional non-executive director limit above existing liability policy terms.

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It can also provide emergency costs of up to 20% of the limit of liability, high limits of additional public relations cover and protection against the acts of any service company appointed by the fund.

Such a product may be of further use going forward as the European Commission has proposed an Alternative Investment Fund Manager Directive (AIFMD) that aims to regulate and police the activities of hedge funds, private equity funds, commodity funds, real estate funds and infrastructure funds. These vehicles currently account for around €2tn of assets under management within the EU.

AIFMD marks the first attempt in any jurisdiction to directly regulate and supervise the alternative fund industry. The EC proposal, which is now being considered by the European parliament and council, has triggered an industry-wide examination of hedge fund practices and a call for greater disclosure of fund directors’ qualifications and duties.

Paul Richards, Executive Director, FINEX National, the financial and professional risk services arm of Willis, said: “The ongoing crisis bedevilling the financial services sector, combined with new stricter regulatory regimes, highlights the important role of insurance as a safety net for when operational and governance controls fail. The Weavering case has caused independent directors to reflect on their functions at board level and what is required to fulfil them. It is a reminder that personal liabilities may be incurred and Fund Protect responds to this by offering a broad coverage that is simple to arrange while providing directors with control over their insurance protection, in many cases at a reduced cost.”