Lawsuit targets 'black box' hedge funds sold to Kentucky pension system
A group of Kentucky government workers and retirees filed a lawsuit Wednesday that seeks to recover “billions” of dollars in losses from three sophisticated money management firms for selling risky and opaque hedge fund investments to the Kentucky Retirement Systems pension funds.
LOUISVILLE, Ky. (WDRB) -- A group of Kentucky government workers and retirees filed a lawsuit Wednesday that seeks to recover “billions” of dollars in losses from three sophisticated money management firms for selling risky and opaque hedge fund investments to the Kentucky Retirement Systems pension funds.
The lawsuit also targets a collection of former and current KRS board members, staff executives and professional consultants – most of whom were in power from 2007 to 2015 during the administration of former Gov. Steve Beshear – for concealing the dire straits of the pension funds and allowing them to plunge further into a financial hole.
Kentucky has racked up at least $33 billion in pension promises to current and future government retirees for which the state lacks funding.
The Kentucky Employee Retirement Systems non-hazardous fund, the main pension plan for state workers and the subject of the lawsuit, alone is about $11 billion in the hole.
The lawsuit, filed in Franklin Circuit Court on Wednesday, alleges that the money management firms KKR & Co. / Prisma Capital Partners; Blackstone Group, LP; and Pacific Alternative Asset Management Co. (PAAMCO) preyed on the retirement systems beginning in 2011 by enticing them to invest $1.2 billion to $1.5 billion in risky hedge funds who charged “excessive” fees.
The asset management firms are among 30 defendants named in the lawsuit.
The plaintiffs said they’re seeking to bring the action on behalf of the Kentucky Retirement Systems – which cannot sue itself – and all state taxpayers who now have to see public services diminished as more state and local government funds have to be committed to shoring up the pension funds.
The lawsuit also says Attorney General Andy Beshear -- former Gov. Steve Beshear's son -- passed on the chance to take up the case as the state's chief lawyer.
The Republican-controlled state legislature is expected to take up Gov. Matt Bevin’s pension reform plan when it convenes for its biannual budget-writing session in January.
Louisville financial consultant Chris Tobe, a former KRS board member who has been an outspoken critic of the pension system's hedge fund investments, applauded the lawsuit in an email.
"It also goes after directly the Wall Street firms that have taken Kentucky taxpayer money via excessive fees in secret no-bid contracts," he said.
A copy of the lawsuit is below:
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