Kentucky Investment in Blackstone Fund Shows Desperation/Cluelessness of Some Public Pension Funds [View all]

One of the easiest types of investors for Wall Street sharpies to fleece are public pension funds that have a large shortfall they are desperate to make up. Even seasoned traders can all too easily start putting on desperate wagers to try to earn their way out of a hole, or worse, cook the books and try to make the trading profits later. Public pension funds as a groups aren’t terribly savvy; even though the California giant CalPERS has been stonewalling us on disclosure, it’s generally seen as competent, which puts it way ahead of most of its peers.

As a new article by David Sirota in Pando Daily shows, by contrast, the Kentucky Retirement System, which manages $14.5 billion, is an obvious lamb led to slaughter. Sirota’s source is Chris Tobe, an SEC whistleblower, former trustee of KRS, and author of Kentucky Fried Pensions, a book about the sorry condition of the Kentucky pension system.

KRS is one of the most severely underfunded retirement systems in the United States, with only 23% of its liabilities funded. As a result, the pension fund is up to its eyeballs in a “reaching for return” investment strategy, which means it has gone full bore into “alternative investments,” a fancy name for high risk, high return, and somewhat to very illiquid strategies like hedge funds, private equity funds, and real estate funds. Kentucky has a whopping 34% of its total funds invested in alternative investments versus the average across the pension fund industry of 22%. That allocation has increased from a mere 7% 12 years ago. More and more experts are starting to question this enthusiasm. As Sirota writes: