Can I invest my 401k in my hedge fund?

Hi

Approached by a hedge fund manager/partner.

They want to set up a 401k plan and invest in their own hedge fund.

Any comments on if can be done?

Thank you

The question needs to be analyzed under the Prohibited Transaction rules, which tend to be fact sensitive.  As part of the analysis one may well run into questions of enterprise organization and ownership (part of those important facts). For what it is worth, I would approach the question with a bias toward the negative, but would not presume anything.  In other words, you are not going to get a reliable answer based on what you have provided*, except that it is a complicated question that deserves the attention of competent legal counsel if they are serious about the proposition.  Oh, and I think it is unwise in any event. Part of the underlying philosophy of ERISA and the prohibited transaction rules is that one’s employment (and related income) should be insulated from one’s retirement savings. Eggs in a basket and all that.

*Providing more information is quite unlikely to get a reliable response, except perhaps a negative. This is not the place for this kind of advice — too complicated and too important —especially for those who may be presumed to be able to pay for it.

Hi

I am definitely going to refer them to a counsel. I was just curious in general terms.

I've seen it, I've helped their actual ERISA counsel with the DL application, and I've updated account balances based on it.  I saw it as a trustee-directed investment with pooled accounting.

The real ickiness was when things went wonky with the fund itself.

Interesting, so you got a DL?
 

One issue dealing with hedge fund assets was the proper valuation. Dealt with a few of them in the past and it was challenge to get a proper valuation.

They were good with getting valuations as required (even quarterly).  The hard part was with one company, their fund in the plan ended up being behind some sort of "gate", with limited way to get funds out.

You were lucky

Agree with all of the above. Difficult issues (besides self-dealing) are what to do about management fees and the plan asset rule (e.g., staying under 25% plan investment).