Hedge funds will now pay the Kentucky Pension System a whopping $200m after more than seven years after a lawsuit was filed.
After more than seven years of legal proceedings, Kentucky’s Attorney General Russell Coleman has announced a significant settlement of over $200 million with four major hedge funds responsible for managing investments for the state’s pension systems.
This resolution comes in the wake of a lawsuit filed in late 2017, aimed at addressing concerns about risky investment practices that jeopardized the financial stability of Kentucky’s pension funds.
Details of the Settlement
The settlement, revealed on Wednesday, involves a total payment of $227.5 million from the hedge funds—KKR & Co., Prisma Capital Partners, The Blackstone Group, and Pacific Alternative Asset Management—to the Kentucky Public Pension Authority, the Kentucky Retirement System, and the County Employee Retirement System.
This financial recovery aims to alleviate the strain on these essential retirement systems, which have faced significant challenges in recent years.
The lawsuit was initially initiated by eight former state employees, alleging that leaders within the Kentucky Retirement Systems and executives from the hedge funds conspired to execute high-risk investments that led to severe financial repercussions.
In defense, the hedge funds contended that they had been transparent about their actions, particularly regarding the $1.2 billion in investments sold in 2011, and asserted that they were simply fulfilling their contractual obligations.
Evolution of the Case
Former Attorney General Daniel Cameron took on the case in late 2020, and the current Attorney General, Russell Coleman, expressed pride in achieving this long-awaited outcome.
In his statement, Coleman highlighted the importance of protecting the pensions of dedicated public servants such as law enforcement and firefighters, emphasizing the Office’s commitment to ensuring their financial security.
“I’m proud of our team who delivered this long-awaited outcome, led by our talented Civil Chief Justin Clark.
I look forward to fully resolving this case so Kentucky’s retirees can enjoy the benefits they earned,” Coleman stated.
Next Steps and Further Legal Proceedings
Although the settlement is a significant step forward, it still requires approval from the Franklin Circuit Court, with a hearing scheduled for February 26.
If approved, this settlement would also conclude several other pending lawsuits against the hedge funds involved.
Notably, approximately $145 million of the settlement is tied to assets controlled by Prisma Capital, which has not yet issued a comment regarding the settlement.
Hedge Funds’ Stance on Wrongdoing
Despite the settlement, the hedge funds maintain their position of denial regarding any wrongdoing. Coleman’s statement noted that the funds agreed to the settlement to avoid the costs and distractions associated with prolonged litigation.
In a statement, Blackstone attorney Don Kelly reinforced this viewpoint, arguing that the hedge fund contributed positively to the state’s pension system.
He referenced a 2022 investigation conducted by New York law firm Calcaterra Pollack, which concluded that there were no violations of fiduciary duty or illegal activities involving Blackstone, KKR & Co., and Pacific Alternative Asset Management.
Kelly highlighted that Blackstone achieved a net return exceeding 30%, significantly outperforming the benchmarks set by the Kentucky Retirement System (KRS).
With the hearing on the settlement approaching, there is hope for a resolution that will restore confidence in the state’s pension management and ensure that retirees receive the benefits they have rightfully earned.
This case serves as a reminder of the critical importance of responsible investment practices and the ongoing need for accountability within financial institutions managing public funds.
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