FRANKFORT, Ky. — A group of former and current public workers has sued three hedge funds for selling risky investments and overstating returns to the agency that manages Kentucky’s struggling pension fund.
The lawsuit filed Wednesday seeks damages from hedge funds KKR Prisma, Blackstone and PAAMCO. The workers allege the funds sold “unsuitable ‘black box’ investments” in 2011 with massive fees to the Kentucky Retirement Systems, according to a summary of the 124-page lawsuit filed Wednesday in Franklin County Circuit Court.
Last year, the pension debt was a combined $21.7 billion across the five systems in the Kentucky Employee Retirement System.
A spokesman for Blackstone called the lawsuit’s claims “baseless.” ”The Blackstone fund referenced in the complaint delivered to the Kentucky Employees Retirement System positive returns outperforming relevant benchmarks,” Matthew Anderson told the Courier Journal.
KKR/ Prisma did not return a request for comment to the newspaper, and a spokeswoman from Pacific Alternative Asset Management said the firm was reviewing the complaint.
The KRS was fully funded in 2001 but after years of bad losses, the pension board trustees and their consultants decided to “take longshot gambles (in 2011) to try to catch up,” the lawsuit said.
The summary said KRS made a massive $1.2 billion investment in one day in August 2011, which amounted to 10 percent of the fund’s assets. The plaintiffs argue the Kentucky Retirement Systems advisors “allowed the trustees to plunge into an over-concentrated hedge fund-of-funds gamble into vehicles that had no prior record of investment performance …” according to the summary.
The suit says any monetary damages awarded would go to help recover pension fund losses. The group of eight plaintiffs has county and state former and current employees, including Brandy O. Brown, a district court judge for Clark and Madison counties.