This includes litigation risk:
Private equity fund managers face litigation risk, which has the potential to cause significant loss to the fund being managed, the funds management vehicle and the individual practitioners. Claims experience in the U.S., the U.K. and Australia demonstrate that the key exposures arise at the point of entry into or exit from an investment. Litigants include the broad range of stakeholders in portfolio companies and the company itself. Claims have also been brought by fund investors. Examples include:
- Allegations by co-investors in portfolio companies for tortuous interference in the investment process. This is particularly likely in down rounds or washout rounds.
- Litigation brought by investors in a portfolio company IPO for misleading statements.
- Action brought by fund investors for negligent due diligence in the investment process.
- Litigation brought by portfolio companies for the withholding of promised funds.