A report released today suggests private equity firms are failing in their own risk management strategies despite it becoming ever more prominent in the industry.
According to the report, almost 40% of private equity insurers expect legal action to be taken against their firms, but 60% report having no formal process to assess management risks that could lead to legal action.
The report published by Marsh today shows the results of interviews with 100 chief executives, chief financial officers and investment directors within private equity firms across Europe.
The report also includes the results of interviews with insurers who underwrite the risks.
Managing director of Marsh's private equity and M&A practice George Davies said: "Private equity firms are by their very nature in the business of risk management.
"However, this report suggests that the industry has not focused equal attention on its own professional risk.
"While firms are increasingly transferring risks into the insurance market, attempting to insure risk is a fruitless endeavour without first carefully ascertaining the exposures that need to be addressed."
The report found that while 40% of respondents did have formal processes in place, these ranged widely from manuals to risk committees.
Others said informal processes such as day-to-day discussions and common sense approaches were sufficient.
