Reuters – American International Group Inc. (AIG.N: Quote, Profile, Research) said on Tuesday it will begin insuring hedge fund managers against liability from certain regulatory investigations andinvestor lawsuits.

The new insurance, offered by a unit of AIG, will be offered to by hedge fund managers, directors or officers and would pay legal fees generated by a regulatory investigation. Any settlement, however, would not be covered.

Illegal activity like late trading also would not be covered.

The $1 trillion hedge fund industry has seen assets double in the last 5 years as pension funds, endowments and charities pile in.

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