Kentucky sues Blackstone and KKR over fund efficiency


The state of Kentucky has sued Blackstone and KKR, demanding compensation and punitive damages over hedge fund investments that have been deemed disappointing however generated “extreme charges”.

In 2011, Kentucky’s pension system invested in hedge funds operated by Blackstone and KKR, as a part of what one official referred to as “an “absolute return technique” that was supposed to cut back danger and ship annual returns of seven.75 per cent.

The state contends the hedge funds “didn’t decrease danger, cut back illiquidity, or generate enough returns . . .[but] did generate extreme charges”. The Wall Avenue corporations “focused underfunded public pension funds,” in accordance with the criticism, seeing them as potential consumers of hedge fund automobiles the state now calls “unique” and “unsuitable”.

The litigation illustrates the pitfalls that may await public pension funds that attempt to juice their funding returns to beat monetary shortfalls. This month, Calpers adopted the same technique, saying it might transfer deeper into personal fairness and personal debt as a part of the California pension scheme’s effort to hit a 7 per cent fee of return.

In submitting this week’s declare, Kentucky’s Republican attorney-general, Daniel Cameron, is aiming to revive a authorized criticism that was initially introduced by eight retired public staff.

That authorized motion ran aground earlier this month when the state supreme courtroom discovered that the employees lacked standing — a ruling that may in all probability develop into moot, if the attorney-general’s intervention is allowed to proceed.

Blackstone referred to as the attorney-general’s intervention “stunning” and stated the claims “have completely no advantage”. It added: “We delivered greater than $150m in web income to Kentucky pensioners — and exceeded by practically thrice the benchmark set by [Kentucky Retirement Systems] itself.”

KKR’s Prisma hedge fund unit has beforehand stated it met all its obligations to the Kentucky pension system, arguing it couldn’t have been liable for the fund’s shortfall, which existed lengthy earlier than it was employed by the state.

State legal professionals indicated in authorized filings that they anticipate to recuperate lots of of tens of millions of {dollars}. “Our objectives in pursuing this litigation are . . . to guard the pensions of hardworking authorities staff,” a spokesperson for Mr Cameron stated on Wednesday.

The lawsuit alleges {that a} “significant portion of the income flowed to prime executives,” together with Blackstone founder Stephen Schwarzman and his KKR counterparts, Henry Kravis and George Roberts.


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