Kentucky Court Moves Forward Claims Over KRS Hedge Fund Investments

A lawsuit claiming the Kentucky Retirement Systems (KRS) lost money on more than $1.5 billion in hedge fund investments in recent years, although its own advisers privately urged it to stay away from such “unacceptable risks,” has been moved forward by a Franklin County judge.

The lawsuit was filed against investment firms and current and former trustees and officials of the KRS. The investment firms named in the suit are KKR & Co., Prisma Capital Partners, The Blackstone Group and Pacific Alternative Asset Management.

According to the Courier Journal, the defendants asked that the lawsuit be dismissed on the grounds that the eight plaintiffs lacked standing. Franklin Circuit Judge Phillip Shepherd ruled that the plaintiffs “have a property interest” in the pension funds and that they “allege sufficient facts to demonstrate taxpayer standing,” the news report says.

The judge also ruled that the allegations of the plaintiffs against former KRS officials and the investment firms were sufficient for the case to proceed. “For example, plaintiffs reference the massive fees collected by these defendants in breach of the common law fiduciary duty not to charge excessive fees,” Shepherd wrote, according to the Courier Journal. “After factual discovery is completed, those allegations may be disputed or disproven. At this time, however, without full disclosure of all fees, costs, and other expenses related to the management of these hedge funds, the court cannot dismiss these defendants.”

Only one defendant—the Government Financial Officers Association—was dismissed from the case.