Matt Bevin, the Republican candidate for governor, said he isn’t worried about the use of “alternative investments” by the state’s troubled pension system for public workers.
Alternative investments make up about 35 percent of the Kentucky Retirement Systems fund’s assets. Managers of alternative investments generally require high fees for overseeing assets invested with hedge funds, oil and gas leases, timberland and leveraged buyouts.
The KRS use of alternative investments has been a focal point of some critics. Those investments tend to be riskier and provide lower returns, according to Chris Tobe, a former KRS trustee who wrote the tell-all book “Kentucky Fried Pensions.”
The KRS fund is about $17 billion short of what it needs to make future payouts to pension-holders, making it one of the worst-funded pension systems in the country. KRS serves state and local employees, police officers and non-teaching staff of local public schools, among others.
During a WFPL News Special on Tuesday, Bevin said he wasn’t troubled by KRS’ use of alternatives as part of its investment strategy.
“It is the prerogative — the responsibility — of the fiduciaries of those plans to invest them as they can best invest them, and that includes diversification,” Bevin said.
Following reforms enacted by the legislature in 2013, new hires who go into the KRS system receive 401(k)-style defined-contribution plans. Bevin has suggested moving existing pension-holders onto defined-contribution plans and requiring existing workers to make larger contributions to the pension system.
KRS’ annual investment expenses are running 75 percent higher than reported in previous years, according to a recent report by the Kentucky Center for Investigative Reporting.
KyCIR’s James McNair wrote:
In a staff memo given to board members, KRS said that it revised the amounts spent on outside investment firms in the year that ended June 30, 2014, as part of a “proactive transparency change.”
“It did not affect our net income,” said KRS Chief Investment Officer David Peden. “Our net performance numbers were the same.”
In the governor’s race, Bevin has made a case for himself as a pension expert. In 2003, he founded Integrity Asset Management, an investment firm which managed public pension funds. Some of those funds underperformed, according to a report from the Frankfort State-Journal.
On Tuesday, Bevin said KRS’ focus on alternatives were based on many variables specific to Kentucky.
“It’s frankly lower than some states and higher than others. Every state is different — it’s dependent on many things,” Bevin said.
Public pension funds in South Carolina, Pennsylvania and Texas had a greater percentage of assets tied up with alternative investments than Kentucky, according to a 2013 Public Fund survey of 98 major public pension funds.