KY state pension system to collect $227.5 million under proposed hedge fund settlement
Kentucky’s public pension system will collect $227.5 million from hedge fund managers to settle a complex mass of litigation if a Franklin Circuit Court judge approves at a Feb. 26 hearing.
The deal would resolve eight different legal matters pending in three states.
All of the cases involve the Kentucky Public Pensions Authority, which 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 KPPA’s predecessor, known as 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.
The “Mayberry litigation” — named for lead plaintiff Jeff Mayberry, a retired Kentucky State Police captain — dragged on for years.
It spawned out-of-state counter-suits by the hedge fund dealers, who said they sold legitimate investment products in Kentucky and resented the accusations of wrongdoing contained in the litigation. They estimated Kentucky’s legal liability, for breach of contract, at more than $100 million.
And it was dismissed by the Kentucky Supreme Court on the grounds that the plaintiffs couldn’t show how they were harmed because their pensions still are being paid.
Later, then-Attorney General Daniel Cameron revived and expanded the Mayberry litigation.
Former U.S. District Judge Layn Phillips of Oklahoma spent much of 2024 negotiating a settlement between the state of Kentucky and the hedge fund dealers, according to the joint motion to approve the agreement, filed on Wednesday in Franklin Circuit Court.
If approved by the court next month, KPPA would get $227.5 million from the hedge fund dealers, including $145 million held by the Daniel Boone Fund LLC, which was an investment product created for Kentucky’s public pension system by Prisma.
In return, the hedge fund dealers “continue to deny liability with respect to all the commonwealth’s claims and maintain that they have settled solely to avoid the expense, distraction and inconvenience of further litigation,” according to the joint motion.
In a prepared statement Wednesday, Kentucky’s current attorney general, Russell Coleman, said it was good for public employees to have these cases settled.
“As law enforcement, firefighters and other public servants, these Kentuckians dedicated their lives to our commonwealth. It’s our office’s responsibility to fight for them against those who put their pensions at risk,” Coleman said.
