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Kentucky Appeals Court dismisses pension fund’s hedge fund lawsuit

The Kentucky Court of Appeals has dismissed a December 2017 lawsuit alleging breach of trust and fiduciary duties against Blackstone Group, Prisma Capital Partners, KKR & Co. and Pacific Alternative Asset Management Co., after the $18 billion Kentucky Retirement Systems, Frankfort, invested $1.5 billion in hedge fund investments run by the firms.

The suit, Mayberry vs. KKR, was filed on behalf of state taxpayers and KRS by eight public employees who are members of the retirement system. The plaintiffs claimed that the defendants enticed KRS to invest in funds of funds investment vehicles, when KRS could have earned higher returns in the stock market.

On April 23, the appeals court reversed an earlier decision by a state circuit court judge in November 2018 denying the hedge fund firms' motion to dismiss.

The appeals court ruled that plaintiffs did not sufficiently plead their case, as their allegations "do not support a finding of taxpayer standing," the April 23 opinion said.

Plaintiffs made a "generalized allegation" that their taxes increased, for instance.

"They have asserted a mere speculation or expectancy that their taxes have increased or will increase because of defendants' actions. This is insufficient to support taxpayer standing."

Additionally, plaintiffs did not allege that their benefits have been or will be decreased as a result of the defendants alleged actions, the decision said.

On Monday, an attorney for Blackstone responded for comment on the decision.

"We're pleased with the appellate court's decision dismissing plaintiffs' claims for lack of standing," Don Kelly, an attorney at Wyatt, Tarrant & Combs, wrote in an email. "This is a case that never should have been brought. We followed our agreement with KRS to the letter and delivered $158 million in net profits to Kentucky pensioners — representing returns three times the benchmark set by KRS itself."

KRS declined to comment for this story, as did Prisma, which was acquired by KKR in 2012 and merged with PAAMCO in 2017 to form PAAMCO Prisma Holdings.