Politics & Government

Hedge fund with $100 million in Kentucky retirement funds fails

FRANKFORT — A hedge fund in which Kentucky Retirement Systems invested $100 million has failed and will be closing.

Arrowhawk Capital Partners of Darien, Conn., could not raise enough money from investors to succeed, said T.J. Carlson, KRS chief investment officer. KRS oversees $13 billion in retirement funds for state and local government employees.

KRS expects to get its $100 million back as Arrowhawk carefully unwinds its portfolio, Carlson said Thursday.

"That could change in the next few months, but as of right now, we do hope to get back the money we put in," he said.

Arrowhawk did not return a call seeking comment.

KRS' decision to invest in Arrowhawk became controversial in June when state Auditor Crit Luallen linked it to a New York placement agent named Glen Sergeon. Placement agents are middlemen who help private investment companies sell their products to investors, such as KRS.

Adam Tosh, who was Carlson's predecessor as KRS chief investment officer, arranged for Sergeon to attend the 2009 KRS meeting that led to the commitment to invest in Arrowhawk, a deal for which Sergeon would be paid placement agent fees, auditors wrote. Tosh did not introduce Sergeon to other KRS officials or explain what Sergeon's interest was, auditors wrote.

Tosh resigned in 2010, shortly after internal auditors at KRS questioned him about nearly $6 million in fees paid to Sergeon from KRS deals.

Some Kentucky lawmakers have proposed banning the use of placement agents in public pension investments.

Initially, KRS planned to invest $200 million in Arrowhawk in four $50 million installments. Carlson said he decided to stop the investment level at $100 million after he arrived in 2010.