Key Takeaways
- • Kentucky's public pension system voted to settle a decade-long litigation against hedge fund managers KKR & Co., Prisma Capital Partners, The Blackstone Group, and Pacific Alternative Asset Management, with the investment firms agreeing to pay $227.5 million to the state's pension systems without admitting wrongdoing.
- • The "Mayberry litigation," filed in 2017 by Kentucky public workers, alleged that hedge fund dealers sold the Kentucky Retirement Systems "extremely high-risk, secretive, opaque, high-fee and illiquid vehicles" that generated excessive fees, poor returns, and ultimately losses totaling approximately $1.5 billion in claimed damages.
- • The Kentucky Public Pensions Authority, which serves roughly 475,000 state and local government employees, has faced persistent funding shortfalls; the $227.5 million settlement represents partial recovery from investments that allegedly exploited trustees' lack of expertise in complex financial instruments.
- • Settlement terms will remain confidential until finalized and filed in court, with court approval expected in coming weeks; Blackstone separately agreed to pay $18 million as part of the broader resolution.
Summary
Kentucky's public pension system reached a settlement agreement Friday in a protracted lawsuit stemming from allegations that major hedge fund firms sold unsuitable and expensive investments to the state's retirement systems. The four defendants—KKR & Co., Prisma Capital Partners, The Blackstone Group, and Pacific Alternative Asset Management—have agreed to collectively pay $227.5 million to Kentucky's pension systems, though all parties to the settlement maintain that no wrongdoing is admitted.
The litigation, known as the "Mayberry litigation" after lead plaintiff Jeff Mayberry, a retired Kentucky State Police captain, began in 2017 when a group of Kentucky public workers filed suit claiming the hedge fund managers had effectively defrauded the state. The plaintiffs alleged that the investment firms sold hedge fund investments characterized as "extremely high-risk, secretive, opaque, high-fee and illiquid vehicles" that produced excessive management fees, subpar returns, and ultimately losses. The lawsuit claimed damages of up to $1.5 billion, and contended that Kentucky Retirement Systems trustees and employees lacked sufficient expertise in complex financial instruments to properly evaluate or oversee these exotic investments.
The Kentucky Public Pensions Authority, the state entity responsible for administering retirement benefits to approximately 475,000 employees of state and local governments and quasi-governmental entities such as public health departments and mental health boards, has contended with substantial funding shortfalls for years. The settlement provides partial recovery from investments that critics argued were misaligned with the pension system's conservative risk tolerance and fiduciary obligations.
While settlement amounts have been disclosed—with Blackstone contributing $18 million of the $227.5 million total—the detailed terms of the agreement will remain confidential until they are finalized and formally filed with the court, which may occur within days. Court approval is anticipated in coming weeks, pending judicial review of the settlement's adequacy and fairness to the pension system and its beneficiaries.
The litigation, known as the "Mayberry litigation" after lead plaintiff Jeff Mayberry, a retired Kentucky State Police captain, began in 2017 when a group of Kentucky public workers filed suit claiming the hedge fund managers had effectively defrauded the state. The plaintiffs alleged that the investment firms sold hedge fund investments characterized as "extremely high-risk, secretive, opaque, high-fee and illiquid vehicles" that produced excessive management fees, subpar returns, and ultimately losses. The lawsuit claimed damages of up to $1.5 billion, and contended that Kentucky Retirement Systems trustees and employees lacked sufficient expertise in complex financial instruments to properly evaluate or oversee these exotic investments.
The Kentucky Public Pensions Authority, the state entity responsible for administering retirement benefits to approximately 475,000 employees of state and local governments and quasi-governmental entities such as public health departments and mental health boards, has contended with substantial funding shortfalls for years. The settlement provides partial recovery from investments that critics argued were misaligned with the pension system's conservative risk tolerance and fiduciary obligations.
While settlement amounts have been disclosed—with Blackstone contributing $18 million of the $227.5 million total—the detailed terms of the agreement will remain confidential until they are finalized and formally filed with the court, which may occur within days. Court approval is anticipated in coming weeks, pending judicial review of the settlement's adequacy and fairness to the pension system and its beneficiaries.
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