Melissa Mark-Viverito, New York City’s second-most-powerful elected official, called them vultures.

Hedge funds that hold billions of dollars of Puerto Rico’s high-yield debt “are feeding off the misery of the island,” Mark-Viverito, speaker of the City Council, told a cheering crowd last week at a City Hall rally. She accused the funds of trying to gut wages, education and health care for the island’s 3.5 million residents.

What she and other critics who spoke that day didn’t say was that New York taxpayers and retirees entrust some of those hedge funds with more than $2.2 billion of the city’s $166 billion in pension assets.

The July 28 rally, organized by the city’s Hispanic Federation, attracted Latino activists who heard Mark-Viverito, Mayor Bill de Blasio and Comptroller Scott Stringer each acknowledge the special relationship between the island and New York, where more than 700,000 Puerto Ricans reside, almost twice as many as in San Juan.

No one suggested taking back the pension assets stashed with the firms.

Puerto Rico, with a credit rating that’s sunk as low as Greece’s, and its agencies have racked up $72 billion of debt, which Governor Alejandro Garcia Padilla says the island can no longer afford. Puerto Rico defaulted for the first time Monday, when it paid just $628,000 of a $58 million bond payment due from one of its agencies.

Big Buyers

As the yields on Puerto Rico bonds soared, hedge funds and other distressed-debt buyers swooped in. They now hold as much as 30 percent of the obligations of Puerto Rico and its agencies, Barclays Plc municipal-debt strategist Mikhail Foux estimates.

Critics of the hedge funds base their attack on a report commissioned by some of them. The analysis by three former International Monetary Fund economists, which was released last month, said Puerto Rico could avoid defaulting by cutting spending, improving tax collections and selling its ports and other real estate.

City pension funds for teachers, civil servants, police officers and firefighters have assets managed by Fir Tree Partners, Perry Capital, Brigade Capital Management, Centerbridge Partners, Marathon Asset Management, Angelo Gordon & Co. and D.E. Shaw & Co., according to disclosures by the retirement funds.