KY state pension system agrees to settle long-running lawsuit over hedge funds
Kentucky’s public pension system voted Friday to settle a long-running mess of litigation over claims that several hedge fund managers cheated it on up to $1.5 billion in investments starting more than a decade ago, with blame to be shared by some of the system’s own officials.
However, pension officials said the terms of the settlement won’t be made public until they are finalized and filed in court, possibly in coming days.
The Kentucky Public Pensions Authority is responsible for providing retirement benefits for about 475,000 employees of state and local governments and quasi-governmental entities, such as public health departments and mental health boards.
Its pension funds long have faced large funding shortfalls.
In 2017, a handful of Kentucky public workers filed a lawsuit claiming that KKR & Co., Prisma Capital Partners, The Blackstone Group and Pacific Alternative Asset Management sold hedge fund investments to Kentucky Retirement Systems that were “extremely high-risk, secretive, opaque, high-fee and illiquid vehicles.”
The investments produced “excessive fees … poor returns and ultimately losses,” saddling Kentucky with a crippling pension debt that should be repaid by the hedge fund dealers and their wealthy owners, the suit alleged.
Meanwhile, the suit alleged, Kentucky Retirement Systems trustees and employees with no expertise in complicated financial matters dithered as the pension system lost public money on “exotic” hedge fund investments.
The “Mayberry litigation” — named for lead plaintiff Jeff Mayberry, a retired Kentucky State Police captain — dragged on for years.
It spawned counter-suits by the hedge fund dealers, who said they sold legitimate investment products and resented the accusations of wrongdoing; and got dismissed by the Kentucky Supreme Court on the grounds that the plaintiffs couldn’t show how they were harmed because pensions still are paid.
It also drew the attention of then-Attorney General Daniel Cameron, who revived and expanded the lawsuit.
In its most recent form, in a complaint filed April 8, 2024, in Franklin Circuit Court, the state of Kentucky was identified as the plaintiff in the litigation.
The several governing boards that comprise what’s now known as the Kentucky Public Pensions Authority voted Friday to accept a settlement agreement that would end the hedge fund litigation, said Ryan Barrow, the authority’s executive director.
The terms of the deal are not yet official or ready to be made public, Barrow said.
In a prepared statement, Don Kelly, an attorney for Blackstone, said the hedge fund dealer “makes no admission of liability or wrongdoing” in the settlement agreement.
“BXMA (Blackstone) delivered a net return in excess of 30%, significantly outperforming all of KRS’ own benchmarks, and KRS’ own investigation showed that BXMA ‘did an admirable job of protecting capital for their pensioners,’” Kelly said in his statement.
“Kentucky public pensioners are receiving previously invested funds, unrelated to BXMA, representing a substantial majority of the settlement, as well as a meaningfully smaller cash settlement divided among the defendants,” Kelly said.
This story was originally published January 3, 2025 at 4:57 PM.
