Public pension funds benefiting nearly twenty-six million Americans have invested $1.3 trillion in high-risk, high-fee “alternative” investments like private equity, hedge funds, and private real estate that have been wracked with corruption scandals and financial misconduct. Those pension funds could soon face a reckoning, as the downturn in the stock market spreads to these alternative investments, resulting in costly reductions of their estimated value and, in turn, increased contributions from state and local governments to meet those losses.

But most public pension members and beneficiaries have no way of knowing the extent of distress facing their investments. That’s because public pension funds rely on valuations provided by the managers themselves — and thanks to secret contract clauses, managers can significantly massage and inflate their numbers.

“Alternative investments give pension funds the opportunity to hide their losses, which means that they are made to order for this contractionary environment,” said Ted Siedle, a former attorney with the Securities and Exchange Commission who now represents financial industry whistleblowers. “It’s a perfect place to hide. It’s no surprise that the increase in private equity and alternative investments was accompanied by an increase in secrecy. The bottom line is nobody knows what these investments are, nobody knows how they are performing, or what they are worth.”