Private Equity and Hedge Funds: Tailoring Directors and Officers (D&O) Liability Insurance for Fund Managers

Directors and Officers (D&O) liability insurance is mission-critical for private equity (PE) firms and hedge funds in the United States. Fund managers face unique litigation, regulatory and investor-driven exposures—from SEC and state regulator investigations to portfolio-company claims and trade-loss suits. This article explains how fund managers in New York, San Francisco, Chicago and other U.S. financial centers should design, price and place D&O programs that protect principals’ personal assets and the firm’s balance sheet.

Table of Contents

Why PE and hedge funds need bespoke D&O programs

Fund managers are targeted on multiple fronts:

Regulatory enforcement (SEC, CFTC, state regulators) has remained active; SEC enforcement actions create a material risk of expensive investigations and settlements. See the SEC Enforcement Annual Report for FY2023 for enforcement trends and resource allocation. (Source: https://www.sec.gov/files/enforcement-annual-report-2023.pdf)
Investor litigation (LPs alleging misrepresentation, conflicts of interest or breaches of fiduciary duties).
Portfolio-company bankruptcy or distressed exits that trigger derivative or entity-level claims.
Trading losses, AML/compliance breakdowns and cyber-related issues that can dovetail into D&O exposures.

Given these overlapping risks, a “one-size-fits-all” D&O policy is rarely adequate. Carriers and brokers expect underwriting detail on fund structure, GP capital contributions, control provisions and compliance programs.

Key coverage elements fund managers must master

Side A (Individual) coverage — protects directors and officers when the entity cannot indemnify (essential for personal asset protection).
Side B (Entity reimbursement) — reimburses the firm for indemnified losses.
Side C (Entity coverage) — protects the firm itself for securities claims (more common for registered advisers and broker-dealers; less common for stand‑alone GP entities).
Entity and management liability — extensions for portfolio-company oversight, employment practices (EPL), and professional liability gaps.
Run-off and tail coverage — critical when funds wind down or when partners depart.
Related claims — AML, cyber-event linked securities suits, and regulatory investigations require policy wording clarity on allocation and investigative costs.

See related guidance on fiduciary overlaps and trading/compliance exposures:

Typical exposures by fund type (PE vs Hedge Funds)

Exposure Category	Private Equity (PE)	Hedge Funds
Portfolio-company M&A disputes / disclosure claims	High	Medium
LP fiduciary / fund governance claims	High	High
Trading loss suits	Low	High
Short‑seller litigation / market-manipulation suits	Low	High
AML / sanctions exposures	Medium	Medium–High
Need for Side A-Only coverage	Very High	Very High

Pricing & limit sizing: practical U.S. examples

D&O pricing for funds varies widely by AUM, strategy, track record and location. Market dynamics since 2020 have driven higher premiums and tightened capacity, particularly for funds with complex strategies or regulatory histories.

Carrier market participants include AIG, Chubb, Zurich, Hiscox and Beazley — all provide D&O products for funds (see AIG and Hiscox product pages for carrier offerings: https://www.aig.com/business/insurance/d-and-o-insurance, https://www.hiscox.com/small-business-insurance/d-and-o-insurance).
Broker market reports from large firms (Marsh, Aon, WTW) document premium increases and tightened underwriting, especially for financial institutions and funds.

Estimated market ranges (U.S., 2024 market conditions; illustrative only):

Fund example (U.S.)	AUM	Typical Primary D&O limit	Estimated annual premium (USD)	Notes
Small hedge fund — NYC/SF boutique	$100M	$5M	$25,000 – $60,000	Strategy risk and leverage raise premiums
Mid-sized hedge fund — Chicago	$500M	$5–10M	$60,000 – $200,000	Increased for volatility-heavy strategies
Mid-market PE firm — NYC/SF	$1B	$5–10M	$75,000 – $250,000	Portfolio complexity and deal cadence matter
Large PE firm	$5B+	$10–25M	$250,000 – $1,000,000+	Multi-layer towers and bespoke terms required

These ranges reflect marketplace commentary and carrier indications; actual quotes depend on underwriting, loss history and firm controls. For carrier-specific product and quoting guidance see AIG and Hiscox product pages above.

Market note: brokers and market reports have documented meaningful premium increases and reduced capacity pockets for financial firms over recent years — see market commentary by major brokers for current trends.

How location affects placement (NYC, San Francisco, Chicago)

New York-based GPs and hedge funds often pay a premium due to higher plaintiff activity and concentration of litigation counsel; underwriters factor in jurisdictional defense costs.
San Francisco funds with technology exposures may need broader cyber and PI coordination with D&O.
Midwest hubs (Chicago) can see slightly lower defense-cost baselines but are still judged on strategy and regulatory posture rather than geography alone.

Placement tips & best practices for fund managers

Strengthen governance and compliance programs (formal trade surveillance, AML/KYC, valuation methodologies).
Purchase Side A-Only limits sized to protect personal assets of principals (especially critical for first-time funds or when GP indemnity is limited). See Side A Limits and Personal Asset Protection for Fund Managers in Directors and Officers (D&O) Liability Insurance.
Use clear definitions for investigations, defense costs, and allocation between entity vs individual claims.
Negotiate retentions and defense outside limits for Side A where possible, and secure run-off coverage on partner departures.
Engage specialized brokers that place financial-institution D&O towers and manage excess layers; review Pricing and Capacity Challenges for Financial Institutions Buying Directors and Officers (D&O) Liability Insurance for market strategies.

Claims handling and regulatory investigations

Regulator-driven investigations are a frequent driver of D&O losses for funds. Early notification, cooperation and the insurer’s experience handling enforcement actions materially impact outcomes and costs. Carriers’ approach to allocation between entity and individual claims can determine whether managers get immediate Side A protection or face delays while indemnity determinations are litigated. See the SEC enforcement trends for why careful claims strategy matters: https://www.sec.gov/files/enforcement-annual-report-2023.pdf

Quick procurement checklist (for fund managers in the U.S.)

Inventory exposures (AUM, fund vintage, GP capital at risk, fund docs).
Determine target Side A and total tower limits (consider $5M minimum Side A for smaller funds; scale up with AUM and GP wealth exposure).
Obtain competing carrier term sheets; insist on wording for derivative claims, entity coverage, and AML/cyber allocation.
Negotiate run-off and prior-acts date for partner exits.
Document governance, compliance and training programs for underwriting leverage.

Conclusion

D&O for private equity and hedge funds must be tailored to strategy, jurisdiction and organizational structure. Effective programs mix adequate Side A protection, entity-level cover where needed, careful limit sizing, and proactive governance improvements to reduce premium pressure and claim exposure. Work with experienced financial-services brokers and carriers (AIG, Chubb, Hiscox, Beazley, Zurich) to secure market capacity and precise policy language appropriate for U.S. regulatory and litigation environments.

External sources referenced

SEC Enforcement Annual Report FY2023 (enforcement trends): https://www.sec.gov/files/enforcement-annual-report-2023.pdf
AIG — D&O insurance overview: https://www.aig.com/business/insurance/d-and-o-insurance
Hiscox — D&O insurance for smaller firms: https://www.hiscox.com/small-business-insurance/d-and-o-insurance

Internal resources