Why do large investors like pension plans and university endowments use lawyers to assist them with their investments in things like hedge funds, private equity funds, real estate, and commodity funds?
Beyond just reviewing legal terms, lawyers assist alternative asset investors in 4 important ways:
- Lawyers play an important risk management role. They assess legal and regulatory factors associated with an investment fund or manager that could lead to potential investment loss.
- Lawyers help investment professionals and advisers meet the fiduciary duties they owe to their clients.
- Lawyers help investors better position their investment relative to the initial terms that a manager may offer. They put in place certain agreements between an investor and manager to supplement the terms of an investment.
- Because an alternative investment fund is often made up of many investors, each of which is looking out for their own interest, a good lawyer can help an investor better position its investment relative to other fund investors in the fund.
And a lawyer should be able to do all that in a way that’s affordable to an investor.
To many people, including investors and their investment advisers, the concept of working with a lawyer on their alternative fund investments is new.
It shouldn’t be. Many investors are doing it now.
Or they may not think that they’re big enough relative to other private fund investors that they would derive any benefit from this legal service.
They shouldn’t. The same four concepts that were discussed earlier can be used by a lawyer to benefit an investor regardless of the amount of money that they’re allocating to a fund.
Or they may think they can’t afford these legal services.
In fact, legal services in these areas typically are scaled up or down depending on things like the nature of the investment being made and a client’s preferences, making use of such legal services accessible to most private fund investors and their investment advisors.
According to the SEC, as of May, 2015, there were roughly 4,400 investment managers registered with the SEC that provide advice on approximately $10 trillion dollars in assets to 28,500 private fund clients, made up of different individuals and entities.
In my opinion, every one of those 28,500 private fund investors and their investment advisors deserves an advocate who can help navigate and negotiate these investments in an affordable and efficient way. They need a lawyer who strives to empower them.
Alternative fund investing is an involvement sport — not a spectator sport.
Investors and their investment advisors need to be proactive in considering the risks associated with a particular investment and how best to position that investment regardless of size.
My goal at Yarden Law Firm is to help and to empower you in that critical task.