12 Jul 2021

Indemnification Wording in Fund Governing Documents

Informational memo covering the scope of language, potential issues and considerations, and questions investors should ask in due diligence.

The governing documents of most alternative investment funds include indemnification clauses. These clauses are important to investors as they highlight the circumstances or events where the fund may be required to reimburse the asset manager for losses related to the management of the fund. How these clauses are drafted can have implications for investors, as the use of different standards of care has significant impact on the types of loss events that asset managers can claim against the fund’s indemnity.

The wording used within indemnification clauses is not standardised and can vary from manager to manager and jurisdiction to jurisdiction. Investors should be aware of the spectrum of existing indemnification provisions and how they could potentially impact all parties.

This Toolbox memo covers:

  • Indemnification as a sub-set of Liability covering both contractual obligations and indemnification,
  • Spectrum of Wording in Governing Documents including standard of care and indemnification language,
  • Regulatory Views on Indemnification Wording, and
  • Potential Issues and Considerations such as the scope of the indemnity, consistency, insurance, and survivability.

The memo also includes a list of questions investors should ask asset managers during their due diligence process.