Protean Investment Risks, a company newly formed to offer specialist financial risk insurance products, has launched a policy designed to protect hedge fund investors from losses occurring as a direct consequence of a fraud perpetrated by a hedge fund manager or other employee.
The policy, also known as Protean, is billed as the first of its kind to target all hedge fund investors, both corporate entities and individuals. Potential clients include funds of funds, family offices, pension funds, educational establishments and high net worth individuals.
Protean, which was developed over an 18-month period following in-depth discussions with hedge fund investors and advisers, is able to cover funds wherever in the world they are established. The idea was prompted by the experience of a substantial hedge fund investor who suffered a significant financial loss as a result of fraud at the Lancer Offshore hedge fund.
London-based Protean Investment Risks is a private company headed by Nathan Sewell, who has 18 years of experience in the insurance industry, and Jason Edwards. The Protean policy is supported by a panel of insurers including lead underwriters Catlin Group and Great Lakes Reinsurance (UK), part of Munich Re, as well as Lloyd's of London insurers.
'We are proud to introduce this innovative insurance product, which has been designed to provide comfort to investors wishing to benefit from the advantages of investing in hedge funds,' says managing director Sewell.
'Discussions with a variety of hedge fund investors led to its genesis and we have encountered a strong appetite for a policy of this kind - particularly as currently nothing like it is available in the industry.
'We have a product that I truly believe to be unique and unrivalled, making the culmination of the 18-month build period worthwhile. We look forward to establishing it in the coming year as an essential policy for all hedge fund investors.'
Jonathan Kennett of Munich Re says: 'We are delighted to provide support in bringing the Protean product to market. This is a significant insurance product for investors in hedge funds and is a further example where Munich Re, through its primary insurance operations, is expanding its activities into niche markets.'
In the past 10 years, corporates and individuals investing in the hedge fund sector have been defrauded of some USD9bn, according to the US Securities and Exchange Commission's litigation release archives.
The premiums for a Protean policy are determined by analysis of key risk factors attached to the investor's portfolio, including geography, strategy and investment quantum. Underwriting is based upon the portfolio of hedge fund investments at the time of application.
Sewell, who was most recently as a director with London underwriting agency Dual Corporate Risks, began his career in 1989 and has worked for global insurance brokers Aon and Willis. At Aon, he pioneered early investment-related insurance products such as representations and warranties cover for merger and acquisition deals, and at Willis he headed the mergers and acquisitions and directors' and officers' liability divisions.
Edwards joined Protean as business development director from Willis's financial and executive risks practice, where he was director of product marketing. He previously spent more than a decade as a head-hunter specialising in the insurance sector.