Why Management Liability Matters for PE Portfolio Companies

Key takeaways:

• Private equity ownership can affect a portfolio company’s management liability risk exposure before, during and after a transaction.
• Leadership transitions raise important D&O coverage concerns, including how liability risk is managed through pre- and post-transaction periods.
• EPL exposures can increase with workforce restructuring and compensation changes after a deal closes.
• Changes to employee benefit plans during PE ownership can introduce fiduciary liability exposures for those responsible for plan administration.
• Portfolio companies should review management liability coverage regularly to address emerging risks throughout the private equity investment life cycle.

How does private equity ownership affect management liability insurance?

Private equity (PE) ownership changes management liability insurance needs because it shifts risk profiles and increases exposures through leadership changes, organizational restructuring, new governance standards and strategic priorities.

When companies come under private equity ownership, these changes naturally create new exposures. For CFOs, risk managers and executive teams at portfolio companies (PortCos), understanding how to address these changing risks with the right management liability insurance program is a practical way to protect value creation.

“A lot of people focus on risk before a deal closes, but that’s really just the beginning,” said Alan Bond, Private D&O Product Manager at Travelers. “Exposure doesn’t stop at closing – it shifts. Pre-deal decisions can follow a company for years, while new risks emerge as the business operates under new ownership.”

Exposure tends to concentrate in predictable places: due diligence, leadership transitions, workforce changes, governance oversight and long-term risk management. Knowing where to look and confirming that insurance coverage aligns with the company’s evolving risk profile is how management teams stay protected throughout the PE investment life cycle.

How does private equity activity affect the management liability landscape?

Rising PE activity increases management liability exposure across the market. Each transaction impacts leadership structure, oversight expectations and workforce composition, all of which change management liability risk.

Heading into 2026, PE deal activity remained strong after combined global buyout deal values hit $904 billion in 2025, an increase of 44% from a year prior.¹ This rebound from 2024 reflects a more active environment for acquisitions and ownership transitions across the market. For individual companies, this may signal an increased likelihood of being approached for acquisition by a private equity firm.

For portfolio company leadership teams, this activity can lead to increased exposure. Companies that anticipate how these changes affect their exposure are better equipped to make the right adjustments and maintain suitable coverage. According to the Travelers 2025 M&A Study, 87% of business leaders consider their most recent transaction successful, but only 35% rate it as extremely successful.² That gap likely reflects the operational and risk management challenges that accompany ownership transitions.

Extended holding periods create evolving exposures.

PE firms are holding portfolio companies for longer periods after closing. The typical PE-backed company is now held for more than six and a half years on average.³ With an extended timeline, management liability exposures are no longer concentrated only at transaction points. They may evolve significantly over the course of ownership. Shifts in leadership, workforce strategy, governance expectations and business operations can all affect a company’s risk profile between deals, making regular review of management liability coverage a necessary, ongoing discipline rather than a one-time exercise at closing.

New risks can emerge as the organization evolves under PE ownership. Portfolio companies that build periodic coverage reviews into their broader risk management cadence, rather than waiting for the next transaction to reassess, are in a stronger position to keep their programs aligned with the business as it stands today.

What management liability risks emerge during due diligence?

Due diligence is one of the highest-risk phases of any transaction for portfolio company leadership. The process demands detailed financial disclosures, operational documentation and forward-looking projections. These materials carry legal weight well beyond closing. If post-transaction performance diverges from what leadership represented during due diligence, those statements can become the basis for directors and officers (D&O) liability claims. The same is true for omissions. Failing to disclose material information ahead of a deal, whether related to customer data, environmental issues, safety concerns or employment matters, can expose leadership to claims after the fact.

“What gets documented during due diligence can come back later and expose leadership teams to claims if performance doesn’t align with expectations,” noted Michele Rodriguez, Regional Underwriting Officer, Private & Nonprofit, at Travelers.

Leadership teams are often managing several parallel workstreams during this period, including reviewing employment agreements, evaluating organizational structures and planning post-close changes. Decisions made during this phase can introduce employment practices liability risks if they lead to disputes after the deal closes.

In some transactions, specialized tools such as representations and warranties insurance may be used to help allocate certain deal-related risks between buyers and sellers. However, these solutions do not replace the need for management liability coverage that addresses ongoing exposures tied to leadership decisions and disclosures.

For risk managers, due diligence is also a natural checkpoint to assess whether existing management liability coverage aligns with the company’s current risk profile and what is likely to change under new ownership.

What D&O liability risks arise during leadership transitions?

Leadership transitions create D&O liability exposure on two fronts: decisions made by outgoing leadership before the transaction, and actions taken by incoming leadership under new ownership.

When a PE firm acquires a portfolio company, board members change, executive roles shift and reporting structures realign with new ownership priorities. This creates a critical coverage challenge: Which policy responds to which decisions, and are there gaps between them?

“Private equity ownership typically brings a more hands-on approach to governance,” added Bond. “That can create opportunities for growth, but it also raises expectations around oversight and documentation.”

Pre-transaction decisions can generate claims long after closing. A tail or run-off policy addresses D&O liability tied to this period. Meanwhile, incoming leadership faces its own exposure from day one, requiring a new go-forward program. Ensuring that these programs connect properly – with no gaps – is essential at closing.

D&O claims tied to PE transactions are common. Disclosures, financial projections and potential conflicts of interest during ownership transitions have all triggered shareholder litigation. Beyond direct costs, these claims pull leadership attention from operations, complicate board dynamics and stall value creation when execution matters most.

These pressures often continue well beyond closing. As portfolio companies move into the hold period, leadership teams are expected to execute on aggressive growth and value creation strategies under heightened scrutiny. Changes to management practices, evolving governance expectations and increased operational demands can introduce new D&O exposure as decisions are made to drive performance and position the business for a future exit.

“In some situations, that can lead to questions around how decisions were made or how oversight was handled during periods of change,” explained Rodriguez. “That’s why many organizations take a closer look at how their D&O liability coverage addresses both their prior and current leadership and how those two programs interact.”

For portfolio company leadership teams, the takeaway is clear: Confirm how D&O coverage applies across the transaction and verify that there are no gaps between tail and go-forward programs. This keeps leadership focused on execution rather than navigating uninsured exposure.

How do workforce changes affect employment practices liability?

Workforce changes following PE acquisition create employment practices liability (EPL) exposure through executive transitions, restructuring decisions and compensation adjustments. Each carries distinct risks that can accumulate over time.

These changes are common as portfolio companies align with new ownership priorities. They may include leadership shifts, workforce reductions, role realignments, outsourcing or departmental restructuring. While often part of a value creation plan, they introduce EPL risks that companies should anticipate. The 2025 Travelers report on mergers and acquisitions also found that nearly 70% of employees and 74% of leaders report significant stress and uncertainty following a deal, underscoring why workforce transitions are a common source of EPL exposure.⁴

Executive transitions

Changes in executive roles can raise questions about employment agreements and termination decisions. Even when planned as part of the broader transition strategy, they may lead to disputes if expectations are misaligned or individuals believe their employment agreement was not honored. Clear communication and consistent handling of departures can help manage these risks.

Workforce restructuring

Portfolio company restructuring often involves workforce reductions, compensation changes or role consolidation. Questions may arise around how termination decisions were made, how employees were selected and whether processes were applied consistently. This can lead to claims involving allegations of wrongful termination, discrimination or retaliation. Companies should evaluate whether their EPL coverage reflects the scope and timing of workforce changes since closing.

Compensation and incentive changes

PE ownership frequently brings adjustments to salary structures, bonus programs and equity-based incentives. When employees perceive these changes as inconsistent or unclear, EPL claims can follow, including wage-and-hour disputes or allegations of discriminatory compensation practices. Reviewing EPL coverage during and after these transitions helps portfolio companies confirm that their programs account for exposures that accompany compensation changes.

Workforce changes under PE ownership tend to happen in stages, and EPL exposures can accumulate across those stages. Portfolio companies that review their EPL coverage as workforce strategies evolve, rather than only at transaction, are better positioned to confirm that their programs reflect the scope of changes that have actually taken place.

What are the fiduciary liability considerations under PE governance?

PE ownership increases fiduciary liability exposure when portfolio companies restructure employee benefit plans, modify fiduciary roles or change plan administration practices during the transition.

Fiduciary liability coverage protects those responsible for managing employee benefit plans, including retirement, health and welfare, and other employer-sponsored programs, against claims that they breached their duty to act in the best interests of plan participants. Under ERISA, a loss to a plan due to a breach of a fiduciary’s duties carries personal liability.

Ownership transitions often bring changes to employee benefit programs. Companies may restructure retirement plan options, adjust health and welfare offerings, modify employer contribution levels or consolidate plans across newly acquired entities. Business leaders responsible for administering these plans have a fiduciary obligation to manage them in the best interests of participants. Changes made during organizational transitions can draw heightened scrutiny.

When plan participants believe benefit changes were not managed in their best interests, or that fiduciaries failed to follow proper procedures in modifying or terminating plans, fiduciary liability claims can result. These risks increase during PE ownership, when cost optimization efforts may lead to benefit restructuring that affects a broad employee population.

Portfolio companies should confirm that their fiduciary liability coverage reflects any changes to plan structures, fiduciary roles or benefit administration that have occurred since the transaction. As with D&O and EPL coverage, periodic review helps ensure that the program keeps pace with the organization’s evolving governance framework.

Why does ongoing risk oversight matter throughout the PE investment life cycle

Management liability exposures evolve significantly throughout PE ownership, often looking dramatically different at year four than at closing, making periodic coverage review essential as the business changes.

For portfolio companies, management liability considerations extend well beyond closing day. While many organizations focus heavily on identifying risks during due diligence, exposures continue to emerge as leadership evolves, workforce strategies shift, governance structures mature and the business pursues new strategic objectives under PE ownership.

These changes often play out over several years. Recall the six-and-a-half-year average holding period noted earlier. Companies should periodically review whether their D&O, EPL and fiduciary liability coverage still reflects the organization’s structure, leadership and risk profile. It can also be valuable to consider how these policies fit within a broader risk framework that includes cyber and crime exposures.

How risk profiles shift across the holding period

Consider how a portfolio company’s risk profile might change over a typical holding period. In the first year or two after closing, primary exposures often center on leadership transitions and integration decisions: new board composition, revised reporting lines and early operational changes that come with aligning to PE ownership priorities. By year three or four, the focus may shift toward exposures tied to growth initiatives, add-on acquisitions or market expansion, each of which can alter the organization’s D&O and fiduciary liability profile. Later in the holding period, as the PE firm evaluates exit options, new considerations emerge around transaction-related disclosures, representations to prospective buyers and governance decisions that shape how the company is positioned for sale or IPO.

At each stage, the management liability program that made sense at closing may no longer reflect the company’s actual exposure. Key questions include whether D&O limits still align with the current leadership structure, whether EPL terms account for workforce restructuring that has occurred and whether fiduciary coverage reflects changes to benefit plan administration or oversight responsibilities.

Building coverage review into governance practices

The most effective approach treats management liability as a living part of the company’s risk management strategy. Portfolio companies that build regular coverage reviews into their governance and oversight practices are better positioned to identify gaps before they become exposures and to keep leadership focused on building value.

How Travelers supports portfolio companies

Travelers has deep experience working with PE-backed organizations across the management liability spectrum. From structuring tail and go-forward D&O programs during ownership transitions to aligning EPL and fiduciary coverage with evolving workforce and benefit plan strategies, Travelers can help portfolio company leadership teams build management liability programs that reflect the business as it operates today.

Ready to evaluate your management liability coverage? Connect with your Travelers representative to discuss coverage strategies tailored to portfolio companies and the private equity life cycle.

Sources
¹ https://www.bain.com/insights/outlook-gaining-traction-global-private-equity-report-2026/
^{2, 4} https://www.travelers.com/resources/business-topics/business-risk/risk-professional-mergers-acquisitions-insights
³ https://www.mckinsey.com/industries/private-capital/our-insights/global-private-markets-report/private-equity