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The 26-Year-Old Dropout Lapping the Hedge-Fund Field

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Eva Shang is doing the hedge-fund thing her way. That means making money but also making time to blog about dreams, her labradoodle and her fear of becoming a Silicon Valley has-been at age 26.

Legalist Inc., Ms. Shang’s technology-powered investment firm, raised about $400 million in the past six months. Its funds focus on private debt, a hot patch of Wall Street populated mostly by men with pedigrees from top investment banks and private-equity firms.

Ms….

Eva Shang
is doing the hedge-fund thing her way. That means making money but also making time to blog about dreams, her labradoodle and her fear of becoming a Silicon Valley has-been at age 26.

Legalist Inc., Ms. Shang’s technology-powered investment firm, raised about $400 million in the past six months. Its funds focus on private debt, a hot patch of Wall Street populated mostly by men with pedigrees from top investment banks and private-equity firms.

Ms. Shang and fellow Harvard University dropout

Christian Haigh
launched Legalist with a splash in 2016 when she was 20, then struggled for years to attract backers.

“I don’t blame them,” Ms. Shang said about the investors who swiped left on Legalist. “If I were an allocator, there would be no reason to take a 20-year-old dropout with a computer seriously.”

Now, Legalist’s flagship strategy of litigation finance–where fund managers back plaintiff lawsuits in exchange for a percentage of court-awarded judgments–has a record of gross annual returns around 25%, people familiar with the matter said. Insurers and endowments are buying into its funds, which manage $665 million, and the San Francisco-based firm has expanded into corporate bankruptcy loans and lending to government contractors.

Ms. Shang had no formal investment training before starting Legalist, doesn’t own a suit or a car and lives in a shared house with four other startup founders where her wardrobe leans heavily on jeans and Patagonia jackets. Her big splurge last year was on the labradoodle she named General Partner, a legal term often used to describe a hedge-fund founder.

In her off time, Ms. Shang volunteers with a local Girl Scout troop, helps high-school seniors with college applications and travels to Boston to visit her sister and mother. She also writes a blog, for a subscribership of about 60 friends and colleagues, and science-fiction stories for herself.

In 2013, the year Eva Shang started at Harvard University, she helped her sister petition toy maker American Girl to make a doll representing disabled children, a campaign that turned into a TEDx talk.

“She’s an interesting kind of smart,” said

Dominique Mielle,
a former hedge-fund manager who sits on the company’s advisory board. “I get the sense that she reads a lot and is able to seize on very difficult issues and boil them down to a few simple questions.”

Ms. Shang recruited Ms. Mielle by contacting her on LinkedIn after reading her memoir about navigating the hedge-fund industry’s notorious gender gap.

Some question Legalist’s claims of innovation in litigation finance. The firm advertises its proprietary artificial intelligence built to comb through public court databases and identify cases with a stronger chance of winning.

“[There’s no] technology we’ve tested, or that a tech shop has even approached us with, that could help us to price risk in a way that would enable us to make a successful litigation-financing decision,” said

David Perla,
co-chief operating officer of
Burford Capital Ltd.
, a large litigation-finance company.

“You can’t invest based just on the tech,” Ms. Shang said. Legalist’s algorithms help it find better deals faster but, like its competitors, the company employs human “underwriters” to ultimately decide whether to invest in a case, she said.

About 80% of the lawsuits Legalist backs end up winning, according to Ms. Shang. The average success rate in litigation finance is 65%-75%, said an industry executive.

“We don’t know whether [their AI] works or not,” said an investment adviser who has recommended Legalist to some clients. “There are positive indicators from their track record that the mousetrap is able to catch the mice.”

Ms. Shang emigrated to the U.S. from China at age 3 and grew up mostly in a Philadelphia suburb where her mother supported the family working as an actuary. Ms. Shang began proofreading her mother’s resumes at age 7, she said, and helped care for her younger sister,

Melissa Shang,
who has a form of muscular dystrophy and uses a wheelchair.

In 2013, the year she started at Harvard, Ms. Shang helped her sister petition toy maker American Girl to make a doll representing disabled children.

Melissa Shang
is now a Harvard undergraduate and a disability activist.

The American Girl campaign turned into a TEDx Talk, which connected Ms. Shang to Mr. Haigh, an engineer with a knack for scraping online databases. They became friends and decided to scrape the poorly organized Massachusetts online court system using a jury-rigged network of used
Apple
computers, hoping to repurpose the data and sell it.

Ms. Shang didn’t fit into Harvard’s culture of exclusive social clubs, she said. She and Mr. Haigh dropped out and moved to San Francisco in 2016, when they raised their first $1.5 million by making it into startup accelerator Y Combinator. An adviser at the accelerator suggested they use their database for litigation finance, an idea the pair spent a year marketing to mostly uninterested investors before raising their first $10 million fund.

Eva Shang, in dark-colored blouse, and Christian Haigh launched Legalist in 2016 with money from startup accelerator Y Combinator.
Photo: Legalist

The duo also received a $100,000 grant in 2016, from

Peter Thiel,
who that same year financed litigation against Gawker Media. The grant was part of Mr. Thiel’s program to fund startup founders who leave school and gave him no stake in Legalist.

Since then, Legalist has developed a business model of scraping new databases to repeatedly identify niche markets. The firm’s staff of about 50 is fully remote, something that helps it attract talent that wouldn’t normally work for a hedge fund, Ms. Shang said.

Bankrupt companies that Legalist lent to include Maryland-based landscaping company Moon Group Inc. and Buyk Corp., a New York-based grocery-delivery service, according to court documents. The firm is working on a loan this year to a pilot-training company that won a contract from the U.S. Navy, Ms Shang said.

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Legalist’s growth plan is to keep using its data to find trades overlooked by hedge funds staffed by more conventional finance professionals, the firm’s adviser Ms. Mielle said. “No one else is going after that market,” she said.

Achievement and identity feature prominently in Ms. Shang’s blog, where she discusses her anxiety that she won’t live up to her early promise. “I’m reminded that the world I inhabited is quickly being replaced by one in which I am no longer a Young Person and instead have to compete in the grown-up’s lane,” she wrote in a post last year.

Her self-reflection is one more thing that sets Ms. Shang apart, said David Lee, a venture-capital investor and one of her earliest backers.

“The ability of founders to write well and to express themselves correlates highly with their ability to lead and manage people,” Mr. Lee said. “There are a lot of great writers that are founders, but not that many are beautiful writers. She is.”

Eva Shang, with her labradoodle, General Partner, a legal term often used to describe a hedge-fund founder.

Patience Haggin contributed to this article.

Write to Matt Wirz at matthieu.wirz@wsj.com

Corrections & Amplifications
[Legalist’s assets under management are about $665 million. A chart with an earlier version of this article mistakenly used billions instead of millions to measure the assets. (Corrected on April 16)

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