A Kentucky city is suing the state's public pension system over its investment of county employees' retirement money into "risky" hedge funds.
An attorney for Ft. Wright, a northern Kentucky city of 5,700, filed a class-action lawsuit Monday alleging that Kentucky Retirement Systems improperly used money from one of its subsidiary funds to make investments that were illegal under state law.
The civil suit, filed in Kenton Circuit Court, alleges that KRS put an "unreasonably large percentage" of money from a subsidiary fund -- County Employment Retirement System (CERS) -- in "high risk investments which are not appropriate investments for fiduciaries under the common law of Kentucky."
KRS has come under increasing scrutiny over the last couple of years due to poor performance, investments in risky hedge funds and, more recently, the handsome fees those hedge funds reaped from its contracts with the state's beleaguered $15 billion pension system. KRS was recently named among the worst-funded pension system in the nation, at under 24 percent funding.
The lawsuit seeks a court order of damages in total of at least $50 million, which Ft. Wright argues was spent on "management fees" charged by hedge funds and private equity groups per KRS' investment strategy. The lawsuit also seeks to establish a separate investment portfolio for the subsidiary fund, CERS. This would effectively divorce it from the current system whereby CERS' assets are "co-mingled" with KRS.
A group of Kentucky lawmakers has a new summer assignment: shoring up the state’s failing pension systems. At least two of Kentucky’s six pension plans are at a high risk for failure. And their troubles have been highlighted by Bloomberg, the New York Times and the Pew Center.