KKR, Blackstone sued by Lerach Group over hedge-fund returns. Kentucky lawsuit claims firms failed to deliver returns as advertised.

Crain's New York reports:

KKR & Co., Blackstone Group LP and their founders are accused of failing to deliver hedge-fund returns as advertised, in a Kentucky lawsuit that could preview new legal challenges for managers of alternative investments.

The lawsuit was filed on behalf of state taxpayers and the Kentucky Retirement Systems’ pension plans by a group whose lawyers are advised by William Lerach, a now-disgraced, former class-action lawyer who once sent shivers through corporate boardrooms for his brass-knuckled negotiating tactics.

The plaintiffs, including a retired state trooper and a firefighter, allege that the big asset managers misrepresented expensive and risky “black-box” bundles of hedge funds as safe ways to generate high returns. Instead, those investments contributed to the pension system’s virtual insolvency, the plaintiffs said, while the managers pocketed excessive fees.

The defendants include KKR co-founders Henry Kravis and George Roberts, Blackstone founder Stephen Schwarzman, Prisma Capital Partners CEO Girish Reddy and Paamco CEO Jane Buchan. Claims are also made against several outside advisers and Kentucky pension fund officers and directors.

“The claims are baseless,” Matt Anderson, a spokesman for Blackstone, said in an emailed statement. “The Blackstone fund referenced in the complaint delivered to the Kentucky Employees Retirement System positive returns outperforming relevant benchmarks.”

Creepy William Lerach... back in the news ... giving advice!