Fort Wright, Ky., filed a class-action lawsuitagainst the board of the $15.5 billion Kentucky Retirement Systems, Frankfort, alleging the board invested county employees' retirement money illegally in private equity and hedge funds.
The lawsuit, which was filed Monday in Kenton Circuit Court, alleges the board “invested funds of the (County Employees Retirement System) in investments that are not permitted by state statutes in the Commonwealth of Kentucky” and “invested an unreasonably large percentage of CERS assets in high-risk investments which are not appropriate investments for fiduciaries under the common law of Kentucky.”
The management fees tied to these investments over the past five years exceeds $50 million, the city alleges in the lawsuit.
Fort Wright is a participant in CERS, which is administered by KRS.
Ronald Parry, attorney at Strauss Troy representing the plaintiffs, said Kentucky Employees Retirement System and CERS assets are commingled by KRS and that their separate investment standards are not being observed.
“The board is not observing the two different investment standards,” Mr. Parry said in an interview. “CERS investments are more restrictive.”
The lawsuit alleges that KRS' board invested CERS assets in hedge funds, despite being prohibited under state law.
The lawsuit alleges the state prohibits the board from investing CERS assets in hedge funds or private equity funds that are not registered under the Investment Company Act of 1940.
Mr. Parry said the city is “suing for the return of management fees of hedge funds and private equity funds.”
Additionally, the city seeks that the KRS board be permanently stopped from investing CERS assets in funds not registered under the 1940 Act.
William Thielen, executive director at KRS, declined to comment at this time.
The board will discuss the lawsuit at a special meeting on June 11.