Marsh survey shows that private equity companies are increasingly aware of potential litigation
Almost half of private equity firms believe they will face an increased level of lawsuits over the next two years, according to a survey by Marsh. Asked whether the legal action brought against private equity firms in the next 24 months will increase, decrease or remain the same 47% expected it to increase, while 43% said it would remain the same. Only 6% thought there would be less legal action.
The survey also found that private equity firms expect regulators to be the single biggest influencer of potential allegations with 83% citing them as a likely litigant. However, the reality is that regulators today account for just 2% of legal actions, according to actual Marsh claims data.
Marsh’s claims data also reveals that minority shareholders of private equity-backed businesses are bringing the most allegations, representing 46% of claimants in US and 21% in Europe. The most common allegation in both the US and Europe was in relation to a breach of fiduciary duty.
Karen Beldy Torborg, global leader of Marsh’s private equity and M&A practice, said this finding isn’t surprising given the complexity in separating what can be perceived as the dual capacities of a private equity professional. “They can be seen as both a private equity investor and an outside director of the companies they invest in,” she said.
The report surveyed over 150 leading private equity firms across Europe, the Americas and the Asia Pacific. Marsh is the leading risk advisor to the private equity market.
