Against the gods

The August issue of Private Equity Manager is all about risk management and due diligence, two related topics that have moved from the sole providence of the deal partners to the jurisdiction of the CFO, COO and general counsel – the managers of the franchise.

Simply put, risk management is too important a function to not centralize. For example, it might be said that the investment committee exists to control the risk of a partner falling in love with his or her own deal. Building on this, there are a number of procedures that a private equity firm can put in place to further mitigate risk from both internal and external forces.

Starting on p. 18, we present several looks at a resource that many private equity GPs have used to control risk – insurance. Among the growing categories of risk, not surprisingly, is board seat liability. People who serve as directors of companies are getting sued in increasing numbers, and this includes private equity GPs. Insurance professionals argue that their products can and have paid out claims to cover the costs of this and other forms of the negative surprise.

Our new writer, David Rapp, explores in this issue the topic of security for the private equity firm. Some security mishaps – like leaving your laptop in a taxicab – pose a threat to any company. But the private equity industry has potential security problems all its own, starting with the flurry of non-disclosure agreements that accompany the deal flow and negotiation process, moving through online data rooms and culminating in often poorly executed document retention policies.

Finally, a key form of risk control comes in the form of due diligence. As risk morphs and becomes more creative, so too do due diligence services. On p. 26, we've identified three forms of cuttingedge, specialized due diligence that private equity firms are increasingly using.

Next month in PEM, we will explore a different kind of cutting edge – global regulatory and legal trends as they affect private equity investment. If you are someone charged with overseeing people, legal structures and investments in many different countries and jurisdictions, we suspect you'll find our September issue to be very interesting.

All the best,

By David SnowDavid.s@us.investoraccess.com