Key Takeaways
- • Eight public employees have filed a lawsuit alleging the Kentucky Retirement Systems (KRS) lost money on more than $1.5 billion invested in hedge funds, even as its own advisers privately recommended avoiding the asset class citing "unacceptable risks," according to the Lexington Herald Reader.
- • KKR & Co., Prisma Capital Partners, The Blackstone Group and Pacific Alternative Asset Management are named as defendants in an effort to recover investment losses and management fees, plus damages, with past and present KRS trustees and executives also named.
- • The lawsuit asserts the KRS Board of Trustees deemed hedge funds an improper investment in 2006 because they were too risky and KRS lacked the expertise to monitor them, yet KRS invested roughly $1.5 billion in three installments.
- • An attorney's memo filed in Franklin Circuit Court states the absolute return portfolio returned 3.73 percent since inception and lost over 6 percent, almost $100 million, in 2015-16.
- • KRS covers about 365,000 past and present state and local government employees and faces a $27 billion pension shortfall.
Summary
Eight public employees have filed a lawsuit seeking to recover losses that the Kentucky Retirement Systems (KRS) incurred on more than $1.5 billion invested in hedge funds, according to the Lexington Herald Reader, as reported by Institutional Investor. The complaint alleges that KRS's own advisers privately recommended avoiding hedge funds, citing "unacceptable risks."
KKR & Co., Prisma Capital Partners, The Blackstone Group and Pacific Alternative Asset Management are being sued in an attempt to recover what KRS lost on its hedge fund investments and the management fees paid to those firms, along with damages. Past and present KRS trustees and executives are also reportedly named in the suit.
The lawsuit asserts that in 2006 the KRS Board of Trustees determined hedge funds were not a proper investment because they were too risky and because KRS lacked the financial expertise to properly monitor them. Nonetheless, KRS invested about $1.5 billion in hedge funds in three installments, the report said. KRS provides retirement benefits for about 365,000 past and present employees of state and local governments and faces a $27 billion pension shortfall.
In a memo recently filed in Franklin Circuit Court, Louisville attorney Ann Oldfather wrote: "Over the next five years, these black box vehicles provided very poor absolute and relative returns." She added that the absolute return portfolio returned a "miserable 3.73 percent from inception and lost over 6 percent — almost $100 million — in 2015-16."
In separate news, Lansdowne Partners trimmed its management fee on its flagship Developed Markets Fund by 0.5 percent, to 1 percent, for clients invested for more than 10 years, according to the Wall Street Journal. The cut is part of a broader trend among well-known hedge fund firms, including Moore Capital Management, Brevan Howard, Pershing Square Capital Management and Tudor Investment Corp., that have reduced fees in recent years.
KKR & Co., Prisma Capital Partners, The Blackstone Group and Pacific Alternative Asset Management are being sued in an attempt to recover what KRS lost on its hedge fund investments and the management fees paid to those firms, along with damages. Past and present KRS trustees and executives are also reportedly named in the suit.
The lawsuit asserts that in 2006 the KRS Board of Trustees determined hedge funds were not a proper investment because they were too risky and because KRS lacked the financial expertise to properly monitor them. Nonetheless, KRS invested about $1.5 billion in hedge funds in three installments, the report said. KRS provides retirement benefits for about 365,000 past and present employees of state and local governments and faces a $27 billion pension shortfall.
In a memo recently filed in Franklin Circuit Court, Louisville attorney Ann Oldfather wrote: "Over the next five years, these black box vehicles provided very poor absolute and relative returns." She added that the absolute return portfolio returned a "miserable 3.73 percent from inception and lost over 6 percent — almost $100 million — in 2015-16."
In separate news, Lansdowne Partners trimmed its management fee on its flagship Developed Markets Fund by 0.5 percent, to 1 percent, for clients invested for more than 10 years, according to the Wall Street Journal. The cut is part of a broader trend among well-known hedge fund firms, including Moore Capital Management, Brevan Howard, Pershing Square Capital Management and Tudor Investment Corp., that have reduced fees in recent years.
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