Investing while in big law

[Anonymous User]

Before reaching out to HR or anyone at my firm, I’m curious what’s considered appropriate for investment purposes while in big law.

I know the obvious conflicts issues related to stocks. My main question is whether hedge funds are off limits. I have a friend who works at a New York hedge fund and I’ve saved up a lot and was thinking of getting in.

Any insight would be great.

[Jchance]

I don't see why not (no rules forbid it or require you to seek permission beforehand), unless your firm represents one of those hedge funds.

[unclejackkellyesq]

I would expect there to be a formal policy on it. At my firm any trade needs to be run through a pre-clearance tool to clear conflicts.

[Anonymous User]

OP here.

I was under the impression that if you trade a stock yourself, you need to run it past the firm for conflicts. But if someone else is managing your account, then you’re removed from the decision making and don’t have to.

[Anonymous User]

My firm has a formal policy on this. Trading individual stocks is cumbersome at my firm, and I also could be locked into a position that I am trying to exit if any attorney at the firm is aware of MNPI when I want to sell.

I basically just dump my money into VTI and call it good, as my firm's policy specifically permits us to trade broad mutual funds or ETFs like that without needing to go through the cumbersome clearance process.

[M458]

Before reaching out to HR or anyone at my firm, I’m curious what’s considered appropriate for investment purposes while in big law.

I know the obvious conflicts issues related to stocks. My main question is whether hedge funds are off limits. I have a friend who works at a New York hedge fund and I’ve saved up a lot and was thinking of getting in.

Any insight would be great.

You should confirm whether you're even able to invest in the hedge fund; at minimum you'd have to be an accredited investor and probably a qualified purchasers as well. The AI requirement probably not issue, but doubt you're a QP unless you have non-big law $.

[Anonymous User]

Ah I see. I didn’t realize the $200k threshold is for two years + the current year of income. I’ve just started making over 200k. I thought that put me over the threshold but I guess not.

Thanks for pointing that out.

[Anonymous User]

YLS Grad. BL. 6th year. Approximately 890-900k in the market currently, roughly half in the QQQ, one-third blue chip. Gained permission from HR before putting in one dollar.

[bwh8813]

Ah I see. I didn’t realize the $200k threshold is for two years + the current year of income. I’ve just started making over 200k. I thought that put me over the threshold but I guess not.

Thanks for pointing that out.

As M458 noted, that's only for accredited investor status. Unless this hedge fund is a 3(c)(1) fund (doubtful), you'll also need to be a qualified purchaser which is a much higher bar.

[Anonymous User]

OP here.

It’s a startup hedge fund, so I believe it might be 3(c)(1) fund. Currently less than $100 million in assets and less than 100 investors.

This is absolutely not my area of expertise, so if anyone has a link or information that may be helpful, please provide it. You don’t learn this kind of thing doing patent prosecution.

[M458]

OP here.

It’s a startup hedge fund, so I believe it might be 3(c)(1) fund. Currently less than $100 million in assets and less than 100 investors.

This is absolutely not my area of expertise, so if anyone has a link or information that may be helpful, please provide it. You don’t learn this kind of thing doing patent prosecution.

The QP threshold is $5m in investments. For the 3(c)(1)/AI fund 100-investor limit, the tricky part is when you get into look-through issues. As an example, if you, me and bwh are all AIs and we decide to form an LLC to invest in the fund, we're considered 3 investors for purposes of the cap, even though it's one entity investing. This is why it's so hard to maintain a 3(c)(1) fund.

Form Ds are publicly available, so if you search [Fund name] Form D, you can look up your friend's fund - the info is under Part 6 where they'll check the appropriate Investment Company Act exemption.