About $4 billion wrapped up in such funds
By James McNair
Kentucky Center for Investigative Reporting
(July 24, 2014) — At a time when Americans can readily verify what’s in their individual retirement accounts and employer savings plans, the Kentucky Retirement Systems is putting billions of dollars of its pension-holders’ money into investments that are concealed from public view.
As a result, a quarter of the $15.7 billion under KRS’ control might as well be in a black hole for the roughly 340,000 state, city and county workers and retirees in Kentucky. By loading up on so-called “alternative investments” — basically bets on anything — KRS now has billions of dollars in murky entities like the “Daniel Boone Fund,” the “Henry Clay Fund” and “Newport Colonels LLC.”
The alternative investments gambit is playing out in public pension plans nationwide. No longer content with ordinary stocks and bonds, pension funds are turning to riskier, fee-happy “hedge funds” and private equity funds to dodge stock market gyrations and solidify investment returns.
KRS, one of the most financially distressed public pension funds in the nation, ranks fifth in exposure to alternatives, according to a survey by the National Association of State Retirement Administrators.
The foray into alternative investments coincides with critical problems bedeviling the Kentucky pension system. KRS only has enough assets to cover about 45 percent of its obligations to its current and future retirees. As of mid-2013, the shortfall stood at $17.6 billion. And a recent court ruling allowing a bankrupt non-profit group to cease paying into KRS has heightened fears of its insolvency.
Transparency is not a hallmark of the hedge funds and private equity firms with whom KRS is doing business. They require KRS to cloak the specific investments in their portfolios. KRS complies.
Kentucky laws enacted in 1992 and 2008 exempt the investments from the state Open Records Act. It allows KRS to accept the firms’ claims that transparency would make the makeup of their funds easy prey for copycats. Since everything is under wraps, the public can’t know if the recipes are worth copying
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