Pension funds are significant sources of assets for private fund managers.  Hedge fund managers seeking investments from pension funds face a number of practical and legal concerns – including the possible need to register as a municipal advisor, the complex ERISA regime, pay to play rules and dealing with pension consultants – that may not otherwise arise with respect to individuals or other types of institutional investors.  In addition, as exemplified by a recent SEC order against an investment adviser and two of its principals, public pension plan investors may increase the range of responsibilities for hedge fund managers that, if not adequately discharged, can lead to breach of those managers’ fiduciary duties, with potential serious consequences.  In the order, the SEC claims that the respondents engaged in fraudulent conduct by soliciting several state public pensions to invest in one of their alternative investment fund of funds, even though the fund did not satisfy the criteria established under applicable state law for alternative investments by public pension funds.  This article summarizes the relevant provisions of state law, the alleged misconduct by the respondents and the SEC’s charges.  For more on public pension funds, see “Why and How Do Corporate and Government Pension Plans, Endowments and Foundations Invest in Hedge Funds?,” Hedge Fund Law Report, Vol. 6, No. 14 (Apr. 4, 2013).