Risks encountered in the private equity sector are extremely broad and are constantly evolving. The types of risks faced, are usually felt across the whole investment lifecycle, and can include:

• Operational and compliance risk

• Cyber, technology and intellectual property risk

• Transactional risk during the investment/divestment process

• Key person risk

• Environmental, social and governance (ESG) risk and associated pressure from investors

• Geopolitical risks

Private Equity (PE) insurance is a great way to compliment other long-term risk mitigation strategies. PE firms should look to optimise this approach, and do their due diligence to contain costs, preserve liquidity, and protect their investment portfolio. At Lockton, we tailor your insurance program to best suit your firm’s aims and objectives, as private equity insurance is not a ‘one size fits all’ solution. We work in partnership with our clients to understand their exposures, so we can engineer a programme that mitigates risk and provides solutions with the right level of protection for both the GP and their portfolio companies.

Private equity firms should be considering the following types of insurances among others:

• Professional Indemnity (PI)

• Directors and Officers Liability (D&O)

• Cyber Liability

• Theft/Crime

• Insurance Due Diligence

• Warranties and Indemnity (W&I)

• Contingent Liability

• Employee Benefits

• Portfolio company solutions

A comprehensive insurance programme can be a key factor for private equity firms in achieving financial success. This includes everything from fundraising, origination & acquisition, to portfolio management and divestiture strategy.

For example:

Strategy and fund raising: Comprehensive GP liability coverage can protect the funds and investment professionals from inherent risks.

Deal sourcing & investment: Insurance due diligence can identify issues early and transactional risk insurance can facilitate deals.

Portfolio management and value creation: Sector specific expertise can ensure that investments remain protected, and that the private equity firm is appropriately insulated.

Divestiture strategy: Vendor due diligence can uncover potential risks, transactional risk insurance can expediate and simplify a sale, and contingency solutions can remove liquidity issues.

The high-level requirements for a venture capital firm are the same to that of a private equity firm. However, there are some fundamental differences given the nature of the investments venture capital (VC) firms make. VC firms will often make minority investments and forgo board positions which reduce the decision-making capacity around risk management at the portfolio level. This can often be seen as a reduced risk however a comprehensive insurance programme at VC firm level is important to ensure the fund is protected.

Portfolio company insurance covers a wide range of policies which will vary from sector to sector. Lockton’s global capability and sector specific expertise are well placed to offer expert insurance and risk management advice whatever the portfolio company focuses on.

Lockton’s Private Equity Practice’s mission is to become a trusted partner at every stage of your fund’s lifecycle. Our team includes acknowledged insurance experts and recognised leaders in the private equity industry. We bring together insurance advisors, lawyers, ex-underwriters and risk managers, harnessing our global expertise across all key insurance lines to help Private Equity firms successfully de-risk their businesses.

Our global footprint enables us to service our client’s wherever they need including arranging local policies when required by a local regulator or jurisdiction, so you only have to deal with one broker.