KRS Wins Lawsuit While Another Suit Over Hedge Fund Investments Is Ongoing

A court agreed that the Kentucky Retirement System board of trustees were permitted by law to choose alternative investments one city claimed produced small returns and high fees.

A Kentucky judge has dismissed a lawsuit filed by the city of Fort Wright alleging that the Kentucky Retirement System (KRS) violated the law with risky investments in hedge funds, venture capital funds, private equity funds, leveraged buyout funds and other “alternative investments” that produced small returns and excessive management fees, possibly in excess of $50 million over the previous five years, according to a news report.


In its legal defense, KRS said state law gives its board of trustees “exclusive power” to invest the system’s funds where it chooses, including the categories of “alternative assets” to which Fort Wright objected, The Messenger reports.


“The sole issue on appeal is whether the investments made by the board of trustees of the (Kentucky) Retirement Systems are permitted by Kentucky law,” Franklin Circuit Judge Thomas Wingate wrote in his opinion, according to The Messenger. “There is nothing in the record or in the city’s pleadings to this court that persuades this court that (KRS) did not follow the law or did not appropriately apply the facts to the law.”


Meanwhile, a lawsuit alleging investment firms sold investments to KRS that were “extremely high-risk” and produced “excessive fees, poor returns and ultimately, losses,” was filed earlier this year and is still pending. Eight public employees filed the lawsuit against four investment firms and current and former trustees and officials of KRS, saying KRS lost money on more than $1.5 billion in hedge fund investments in recent years, although its own advisers privately urged the agency to stay away from such “unacceptable risks.”.


KRS declined to join that lawsuit as a plaintiff.