Hedge fund investors offered fraud insurance

Hedge fund investors now have the ability to insure themselves against fraud or even the allegation of fraud.
JUL 01, 2008
Hedge fund investors now have the ability to insure themselves against fraud — and even against the allegation of fraud. Hedge Shield, offered by Integro Insurance Brokers Ltd. in New York, is matching due diligence with an insurance policy that protects investors in the event a hedge fund has its assets seized by the government based on allegations of fraud. “Nearly 85% of hedge fund meltdowns over the past 10 years have had elements of operational weakness which could invite fraud,” said Roger Egan, Integro chief executive. The Hedge Shield program, which is underwritten by several participating insurance companies, also relies on the research and due diligence of Amber Partners (Bermuda) Ltd., a Hamilton -based operational risk certification firm. The four key areas of focus are overstatement of net asset values, theft, concealment of trades and false claims of assets to which the fund does not have title. The Hedge Shield policy is unique, according to Mr. Egan, because it is designed to protect the investor as opposed to simply insuring the fund. Under the terms of the insurance contract, once a fund’s assets are seized, investors will be reimbursed for their principal investment within 90 days. Regarding the added costs associated with this kind of insurance policy, it is viewed more as a risk management tool, according to Reiko Nahum, chief executive of Amber Partners. “The risk of fraud is very real and Hedge Shield provides a very effective means to eliminate risk,” she said. “It’s really a hedging tool.”

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