KY’s state pension system drops hedge fund suit with Blackstone for $18 million
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- Blackstone agreed to pay KPPA $18 million within 30 days.
- KPPA could receive an extra $6 million if related suits are dropped within two years.
- On June 18, KPPA and Blackstone jointly sued, arguing employees lack standing to sue.
Kentucky’s state pension system appears to have snipped one thread in a decade-long tangle of litigation with its hedge fund managers over whether up to $1.5 billion in investments were a square deal for taxpayers.
Earlier this month, the Kentucky Public Pensions Authority and Blackstone Alternative Asset Management agreed to drop all claims against each other in exchange for the manager paying the pension system $18 million within 30 days.
The pension system could get $6 million more from Blackstone if, within two years, related litigation being pursued against the company by several Kentucky public workers is dropped. Delays beyond six months or expensive settlement costs could reduce that $6 million sum collected by the pension system.
To speed things forward, on June 18, the pension system and Blackstone jointly filed suit in Franklin Circuit Court against the public employees who have filed their own claim against Blackstone and other fund managers.
The new suit alleges that since KPPA and Blackstone have settled the pension investment controversy, no individual public employees should have the standing to sue for themselves.
A hearing in the case has been set for July 1.
An attorney for the public employees did not immediately return a call on Monday seeking comment.
“This complex suit involves claims that have been litigated for many years. This settlement is an excellent outcome ending a lengthy dispute that would have likely gone on for many additional years with uncertain results,” the Office of Attorney General Russell Coleman, which represented the state pension system, said in a prepared statement.
Blackstone also said it was satisfied with the outcome. It defended its work on the Henry Clay Fund, the investment vehicle it created 15 years ago for the state pension system, which at that time was called the Kentucky Retirement Systems, or KRS.
“BAAM (Blackstone) provided excellent financial service for KRS and the settlement contains no finding of admission of any wrongdoing or breach of any duty on the part of BAAM,” the New York company said in its own prepared statement.
“BAAM’s return significantly outperformed all of KRS’s own benchmarks by more than $100 million, delivering a net return in excess of 30% and generating over $158 million in net profits,” Blackstone said.
There are still pending claims between the state pension system and hedge fund manager PAAMCO Prisma and its investor/partner KKR & Co.
The original 2017 lawsuit over the hedge fund investments, led by retired state trooper Jeffrey Mayberry, blamed the managers for alleged opaque transactions, high fees and large losses that contributed to the pension system’s staggering financial shortfall.
The Mayberry suit was dismissed in 2020 by the state Supreme Court, which said the public workers were legally guaranteed to receive their defined-benefits state pensions and therefore could not show how they’ve been harmed.
New public workers who receive less generous retirement benefits revived the claim in their own suit, as did then-Attorney General Daniel Cameron, acting on behalf of the state pension system.
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 managers. A proposed $227.5 million deal was announced last year, but the parties could not get a Franklin Circuit Court judge to approve the terms.
Last week, the state pension system and the hedge fund managers made oral arguments before the Kentucky Supreme Court to discuss whether the managers could stick the pension system with their legal fees and court costs and the bill for any eventual settlement or judgment.
The hedge fund managers said their contracts with the state pension system included indemnification language shielding them in such events. State attorneys said that would be unconstitutional, because state agencies can’t pass along debts beyond the current two-year state budget unless the legislature expressly approves it.
With Blackstone’s settlement, the question appears moot for that company, at least.
