Investors in a private-equity company, and their lenders, cannot have their investments placed at the risk of an event involving minority interests, over which they have no control, and which do not materially affect the operation of the business.
However, the person who is the face of the private-equity company will typically own less than a quarter of that company.
They are also going to come hunting for the outside directors on the company's board, and that is going to include the limited partners of any private-equity company that leveraged themselves into seats on the board when the private-equity group purchased substantial or controlling interests in the host company and added it to their portfolio.
1 is to insure the management of the private-equity company against lawsuits by its investors.
Historically, there hasn't been a lot of this type of litigation because investors in a private-equity company are generally more sophisticated than your average shareholder in a garden variety retirement mutual fund.
The third is the exposure a private-equity company may face from litigation that runs upstream.