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Long-suppressed report on Kentucky pensions' hedge fund deals is public at last

Kentucky Public Pensions Authority

After a year and a half of open records request denials, the Kentucky Public Pension Authority finally released a 97-page report Tuesday from an investigation into controversial investments major hedge fund firms made with more than $1 billion of the pension system’s assets from 2011-16.

The investigative report was completed in May 2021 by New York law firm Calcaterra Pollack, which the KPPA hired for $1.2 million in late 2020. Then it got turned over to the office of Attorney General Daniel Cameron, who is continuing a long-running lawsuit against the investment firms and several former KPPA officials, alleging they mismanaged the assets.

However, the report was not turned over to The Courier Journal at the time, with the pension agency formerly known as the Kentucky Retirement Systems and the attorney general saying it was exempt from disclosure due to attorney-client privilege.

More:Long-awaited report on Kentucky pension system investments is in. You just can’t see it

In an order two weeks ago, Franklin Circuit Judge Phillip Shepherd ruled the report should not be exempt from the state’s open records law. He gave KPPA 10 days to release the report or appeal the ruling.

In a press release Tuesday, the KPPA announced it had posted the report online — along with more than 2,000 pages of exhibits — “in compliance with the Franklin Circuit Court ruling.”

The KPPA said it would not make additional statements on the report, as the agency “does not comment on matters that could impact pending litigation.”

While Cameron’s office continues to pursue litigation seeking damages for losses the state incurred because of alleged breaches of fiduciary duty, the KPPA has declined to intervene in the lawsuit. That case originally was filed in 2017 by eight retirees, who were eventually found not to have legal standing.

The KPPA also faces lawsuits from two of the hedge fund firms, which allege the pension system breached their contracts by supporting the litigation against them.

The now-public report notes it does not include a separately provided set of legal recommendations for KPPA with analysis of potential legal remedies against several of the defendants.

While there are numerous defendants, the report appears to have singled out only Prisma Capital Partners, its co-founder and CEO Girish Reddy and former KPPA chief investment officer David Peden for “alleged fiduciary duty violations, conflict of interest and ethics code breaches” related to KPPA entering a strategic investment partnership with Prisma from 2014-16.

More:Kentucky Retirement System hires firm for $1.2M to investigate its hedge fund investments

The original lawsuit alleged Prisma executives and KPPA officials, including Reddy and Peden, conspired to give the company full control of the system’s more than $1 billion hedge fund portfolioin this period, all while not disclosing their conflicts.

Referring to its investigation of former Prisma executive William Cook, who was appointed to the KPPA board in 2016 and accused of participating in the alleged scheme, the report stated investigators couldn’t determine if his KKR Prisma investments benefited from his trusteeship due to their limitations, such as not being able to issue subpoenas or obtain personal correspondence or financial accounts.

When summarizing the findings of their investigations into 2011 fund of funds investments with Blackstone, PAAMCO and Prisma (which later became KKR Prisma and is now PAAMCO Prisma), the report said they “did not find any violations of fiduciary duty or illegal activity” by the firms or KPPA officials, while also noting their limitations.

Attorneys for Reddy, Cook and KKR did not immediately respond to a request for comment on the report’s release. Attorneys for Blackstone and Prisma PAAMCO did not have an immediate reaction to the report, while an attorney for Peden said he had no comment.

Judge questions report’s purpose, contract bidding

In his order for the KPPA to release the report, Judge Shepherd stated it was in the public interest to disclose it, citing the significant allegations of misconduct involving more than $1 billion of pension funds.

Listing another factor in favor of disclosure, Shepherd’s order noted it “is essentially a compilation and review of the factual matters, which contains little if any legal analysis.”

Shepherd also referred to past KPPA statements indicating a summary report would be released, as well as its participation in a “questionable bid solicitation process to contract with” Calcaterra Pollack attorneys to conduct the $1.2 million investigation.

More:Judge rules AG Cameron can intervene in lawsuit alleging mismanagement of pension funds

Referring to KPPA correspondence with Calcaterra turned over to the court, Shepherd wrote “the most notable aspect” is the law firm first submitted a proposal to investigate the allegations more than two months before the KPPA put out the request for proposal.

Calcaterra’s second proposal, which won the bid, was “substantially identical” to its first one submitted that June, while the “high end” fee range in the firm’s first proposal was just more than $1.2 million — the amount KPPA set for the eventual contract.

Referring to the lack of information in the report that wasn’t already publicly available, Shepherd indicated it raises questions about if the report’s purpose and intent was to “fully expose all the relevant facts (and to determine if the KPPA and its employees made mistakes)” or to “cover up or minimize those mistakes in an effort to convince the (attorney general) to not pursue claims that could prove embarrassing to the current or former management of KPPA.”

“The public paid $1.2 million dollars for this report,” he wrote. “The public has a right to know its contents and decide if it got what it paid for.”

Reach reporter Joe Sonka at jsonka@courierjournal.com and follow him on Twitter at @joesonka.

This article originally appeared on Louisville Courier Journal: Report on Kentucky pensions’ hedge fund deals finally made public