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Kentucky Pension Plan Case Raises New Worries for Asset Managers

KKR & Co., Blackstone Group LP and their founders should face a lawsuit alleging they failed to ship hedge fund returns as advertised, a pass judgement on in Kentucky dominated Friday in a choice that can provide new legal demanding situations for managers of different investments.

The lawsuit, filed in December 2017, claims that enormous asset managers misrepresented pricey and dangerous “black-box” bundles of hedge finances as safe tactics to generate top returns. The suit used to be filed on behalf of the Kentucky Retirement Systems’ 401-k and state taxpayers. The plaintiffs workforce features a sitting pass judgement on, a retired state trooper and a firefighter.

In rejecting the defendants’ bid to brush aside the case, Franklin County Circuit Court Judge Phillip Shepherd wrote in a 35-page opinion that “the pleadings should be liberally construed in a light most favorable to the plaintiff and all allegations taken in the complaint to be true.”

He pushed aside claims against one defendant, the Government Finance Officers Association, which represents public finance officials within the U.S. and Canada, ruling that the plaintiffs failed to allege a breach of accountability.

Public Scrutiny

The pass judgement on left one debatable subject pending: a plaintiffs’ request to topic hedge fund fabrics submitted within the case — which they’ve described as “black boxes” — to huge public scrutiny.

Managers of personal fairness and hedge finances have lengthy battled to remain exempt from open-records necessities that practice to different government contractors and to stay the main points in their relationships with public pensions confidential.

The disclosure subject might be hotly contested in long term complaints. The pass judgement on ordered the events to confer inside of 30 days at the scheduling of discovery and different pre-trial issues.

‘Very Happy’

“We’re very happy with the result,” plaintiffs’ lawyer Michelle Ciccarelli Lerach mentioned in regards to the Friday ruling. “The plaintiffs believe we’ll now be able to prove our allegations.”

Lerach, a class action lawyer, is married to William Lerach, a disbarred former class action lawyer who once despatched shivers thru company boardrooms and has acted as an adviser to the plaintiffs’ legal professionals.

Defendants come with KKR co-founders Henry Kravis and George Roberts, Blackstone founder Stephen Schwarzman, Prisma Capital Partners Chief Executive Officer Girish Reddy and Paamco CEO Jane Buchan. Several out of doors advisers and Kentucky pension officials and administrators also are being sued.

The defendants have denied wrongdoing. The plaintiffs’ claims are “meritless,” in line with Don Kelly, an lawyer representing Blackstone Alternative Asset Management.

The company “fully complied with all its commitments to KRS, delivering more than $150 million in net profits to Kentucky pensioners and outperforming by nearly three times the benchmark target set forth by KRS in its contract,” Kelly mentioned in a observation. “This lawsuit is an unfortunate and misguided attempt by plaintiffs’ lawyers to blame others for KRS’s funding shortfalls, which pre-dated the investments at issue.”

Kristi Huller, a spokeswoman for KKR, mentioned in a observation that “we take our fiduciary duty very seriously and continue to believe that the allegations about our firm are meritless, misplaced and misleading.”

Copyright 2018 Bloomberg.

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