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Democrats Criticize Hedge Funds, Fees Used By Ailing Pension System

Democratic lawmakers criticized one of the state retirement systems' use of hedge funds after reports showing the practice hasn’t paid off in recent years despite hefty, often secretive fees for investment managers.

“They hide their fees and they have low performance, so what the hell are we doing in hedge funds?” asked state Rep. Jim Wayne, a Democrat from Louisville.

Kentucky Retirement Systems, which manages the pension funds of about 350,000 state workers, has 10.2 percent of its investments tied up in hedge funds. Over the last fiscal year, KRS investments’ declined by 0.5 percent, and the system only has about 17 percent of the money it needs to make future payouts to retirees.

Hedge funds performed poorly last year, with a 5.5 percent average decline in value. Kentucky Retirement Systems spent $123.1 million on fees for investment managers last year.

House Speaker Greg Stumbo said the state needs to take a deeper look at how much investment managers are paid by the state agency.

“Not only did we lose money, we paid exorbitant fees to some of these people to lose our money,” Stumbo said.

KRS is also heavily invested — about 25 percent — in foreign stocks, which performed even poorer last year, with a 10.2 percent average decline.

Republicans boycotted the Tuesday meeting, accusing Stumbo of summoning lawmakers to Frankfort to pay for Democrats’ travel and lodging for political events scheduled for Tuesday.

Minority Floor Leader Jeff Hoover called the event a “last-ditch cling to power” for Stumbo, who is trying to defend the chamber from a GOP takeover in this fall's elections.

“Kentucky taxpayers picked up the $30,000 tab for a meeting that included absolutely no new information, and in fact contained word-for-word information that has been presented in legislative committees over the past several weeks,” Hoover said.

Stumbo said the timing was coincidental, claiming that both parties “have fundraisers almost every night.”

Republicans tried to move a bill during this year’s legislative session that would have required the pension systems to reveal how much and to whom they pay to invest pension funds, but it was blocked by House Democrats.

Republicans are trying to take control of the state House, which has been dominated by Democrats since 1921.

Ryland Barton is the Managing Editor of Kentucky Public Radio. Email Ryland at rbarton@lpm.org.

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