Funds, Family Offices, and Asset Managers: The Plain-English Insurance Playbook

In Hong Kong, no matter whether you run an investment fund, manage assets on behalf of your clients, or operate a family office, your biggest perils and exposures rarely look like “traditional” business risks.

Simply put, managing money for other people is not the same as operating a traditional trading company, or professional services firm.

In many cases, the most valuable “product” being offered is judgement; how mandates are interpreted, portfolios are constructed, risks are taken, and even how decisions are documented or valuations supported. When something goes wrong, or performances fail to meet expectations, the situation can get messy and allegations of wrongdoing or negligence can start to fly. This is when complaints escalate into legal claims and regulatory scrutiny, and the costs of defending yourself can often be as much as any eventual financial judgement or settlements.

When dealing with specialist financial advisors and asset managers, One-Size-Fits-All commercial insurance often doesn’t offer the support these businesses need.

Many standard Commercial Insurance products often leave gaps in relation to investment businesses and, consequently, well structured and considered insurance coverage matters, even for small teams.

The Hong Kong Insurance Landscape; Key Covers

Many investment professionals and family offices will hear terms like “EC,” “E&O,” “D&O,” and even “Crime” and assume that they are all the same thing, or that the terms overlap.

They do not.

These are all different types of insurance, or covers, and are designed to respond to different risks and allegations, brought forth by different parties, and which are often triggered at different points in time.

So, lets break down what you need to know.

First, and arguably most important is Professional Indemnity Insurance. Also known as Errors and Omissions Insurance, or even Professional Liability Insurance inn some markets, this type of coverage is designed for claims that your professional services or advice have caused a client to experience a loss. For investment companies and asset managers, this can take the form of negligence allegations, a lack of due diligence, mistakes being made with reference to trading or the company’s operations, or even the misinterpretation of regulatory guidelines. This type of insurance commonly focuses on covering legal defense costs and any resulting damages arising from allegations of mistakes or errors, being made in a professional capacity.

Next, there is Director’s and Officer’s Liability Insurance. Also known simply as D&O Insurance, this type of policy is aimed at covering risks related to management decisions and corporate governance. In asset management, these risks can extend beyond the boardroom (in the traditional sense) as key decision makers and senior executives can be accused of failing to supervise staff, misleading investors, mishandling business conflicts, or even allowing systemic control failures. When disputes and accusations of wrongdoing involve governance, disclosure to investors, or even fundraising representations, it is normally Director’s and Officer’s Insurance that is central to a successful mitigation and resolution.

Crime and fidelity-related protections address dishonesty risks. This could include concerns in relation to issues such as employee theft and even specific types of third-party fraud. For many family offices or asset management firms, the most painful losses are often not “theft of petty cash,” but rather payment diversion, forged instructions, internal collusion and misappropriation that creates not only an internal financial loss, but also triggers litigation from clients and investors. In some cases, Cyber Insurance products may respond to specific network and privacy related events, but does not fix a “money in the wrong account” situation; which are often treated as a crime-risk rather than a pure cyber event.

When taking steps to manage your exposures and mitigate the risks you face in your every day business, a Hong Kong Insurance broker like CCW Global will usually start by mapping your real-world workflows to actual policy triggers.

Who can move money? How are instructions authenticated? Where are investment decisions documented? How are valuations approved?

These are all critical questions that will determine the coverage mix that is suitable for your specific business. The goal is to align your insurance portfolio with how you actually operate, and with how disputes and investigations actually arise.

Client Complaints; Where Do Claims Come From?

When looking at funds, family offices, and asset managers, it helps to think about investment claims and client complaints as falling into a couple of defined narratives.

One common complaint is “You didn’t do the thing you said you would do!” This can encompass a wide range of subjects, from drifting outside an agreement, concentrating risk more than permitted, using unconventional financial instruments, or even failing to make a purchase that was contractually expected. Another complaint is “You didn’t give us the information we needed!” where the dispute revolves around risk disclosures, client agreements, fee transparency, or the real drivers of performance and drawdowns.

A third complaint is often “Your operations failed!” This can include allegations of trading errors, settlement mistakes, valuation issues, improper fee calculations, or insufficient controls around business actions. 

A final complaint or narrative is often, “Your conflicts are unmanaged!” This usually involves concerns regarding related-party transactions, allocation between accounts, and preferential treatment concerns. This final complaint is normally emphasized by regulators; fund and asset managers should have arrangements to identify, prevent, manage, and monitor conflicts, and to implement safeguards to ensure fair and impartial treatment of investors or clients.

No matter which complaint is being leveled at your organization, all of these narratives can trigger legal defense costs far before any actual wrongdoing is discovered. The simple existence of an allegation of malfeasance, or an error, can put significant strain on an organization. Which is why the structure of professional liability and management liability insurance products is just as important as the overall limit provided by the policy.

Family Offices; What Makes Them Different?

Family Offices often assume that many of the risks facing more traditional asset management businesses do not apply to them. Family offices are prone to seeing themselves as “low risk” because the capital is connected to one family.

In practice, the risk picture can be extremely complex.

Many modern family offices operate like institutional investors. They allocate to private markets, co-invest with third parties, hire internal investment staff, and run sophisticated governance structures. At the same time, however, their operations can be lean, with heavy reliance on external advisors and third-party vendors. This combination of high complexity and lean infrastructure creates significant operational and governance vulnerabilities.

This is of concern as Hong Kong has openly positioned itself as a family office hub. Since 2022, the HKSAR government has reported that more than 200 family offices have established or expanded their presence in the city.

More opportunities mean more growth, and more growth means new talent, new companies, new structures, and new cross-border activity. All of which often introduce preventable errors such as unclear authority to sign, inconsistent documentation, and informal decision-making processes that become hard to defend when challenged in a complaint situation.

In addition to these external perils, family offices also face distinct internal stakeholder risks.

Even if “clients” are your family, disputes can still arise. These disputes can occur between family members, across different family generations, or between shareholders and managers of the actual office; the question in a claim is not only whether an investment performed as expected.

In fact, many family office disputes relate to whether the office followed agreed governance, documented decisions adequately, or effectively managed conflicts (whether between the different members of the family, or between the family office and external parties).

Coverage; Errors and Omissions with Director’s and Officer’s

In a well-structured risk management program for asset managers and family offices, Errors and Omissions Insurance (Professional Indemnity) is going to be the workhorse in relation to allegations of negligence, wrong doing, or mistakes found in your professional services. Director’s and Officer’s Insurance is designed for the people in charge, and is particularly useful when client allegations are tied to governance, fundraising, or supervisory concerns.

The practical objective is to avoid grey areas where each policy points at the other.

Problems tend to occur when a client claim includes both service allegations and governance allegations. Unfortunately, this situation is not uncommon.

As an example, a client or investor may allege that an asset manager was negligent in performing due diligence on a critical investment (falling under Professional Indemnity Insurance coverage) while at the same time alleging that the asset manager failed to adequately supervise employees working on the investment (falling under Director’s and Officer’s Insurance coverage). If the two policies are not aligned with regards to definitions and exclusions, there is a very real scenario where further disputes are created over which insurance is liable to pay defense costs and judgements, or over the gaps created by “professional services” exclusions in D&O products and “management acts” exclusions on E&O plans.

Correctly structuring your coverage is not about buying more insurance or spending more money. It is about making the policies speak the same language when it comes to who is insured, what constitutes a claim, what counts as “professional services,” and how defense costs will be allocated or paid out. This is crucial for groups that include a manager entity, general partner entities, investment adviser entities, and even special purpose vehicles for co-investments.

Getting Started With Business Insurance; Pragmatism

If you are starting to build an insurance portfolio for a fund manager, asset manager, or family office business, or if you are reviewing existing coverage, it is important to start with the reality of how your firm actually operates.

Ignore the names of insurance policies, and instead clarify which entities provide advice and which hold assets, understand who signs investment documents and where decision making happens. Once you have this initial understanding, then map the likely allegation paths from that understanding; investor disputes, governance allegations, employee dishonesty, and operational errors are not uniform across every business.

Knowing where your exposure lies is the first big step in mitigating it.

From there, the job of a specialist broker is to translate that operational map into an insurance structure that is coherent across Professional Indemnity, D&O, and related covers, and to negotiate definitions and extensions so that the insurance program responds to the scenarios that actually happen in the industry.

CCW Global can support that process in Hong Kong by tailoring coverage to the real structure of the business rather than forcing an investment firm into generic commercial templates.

For more information about Asset Manager Insurance in Hong Kong Contact Us and Ask CCW Global today.

CCW – where your insurance is always Swift, Simple, and Sorted.