“Alternatives are inherently less transparent,” Biggs said in an e-mail. “Hedge funds are understandably loath to discuss their trading strategies, since that’s what differentiates them from their competitors. But the public wants to know what investments are being made, what the risks are, and how much the pension is paying in fees.”

North Carolina assumes its pension must earn 7.25 percent annually to cover promised benefits and to calculate what local governments and the state must contribute. Some funds, such as the California Public Employees’ Retirement System, the biggest of its kind in the U.S. with almost $300 billion, have lowered return assumptions under pressure to reflect market realities.

North Carolina has about $18.7 billion of alternative investments, or 21.5 percent of its assets. In 2007 it was 3 percent and the state has authority to increase it to 35 percent. The pension lagged behind both of its benchmarks for private equity and hedge funds for the past 10 years, according to its financial report.

Still, the state paid $416.2 million to firms hired to manage pension money last fiscal year, according to its annual report. A footnote says that it didn’t disclose all fees, such as those for fund-of-fund investments.

Fee Inflation

Alternative investments have led to battles over disclosure in other states. Last month, the Pennsylvania Public School Employees’ Retirement System removed such contracts posted prior to 2012 from the treasurer’s website.

In May, U.S. Securities and Exchange Commission Chairwoman Mary Jo White told Congress that hedge funds and private-equity firms have created bogus service providers to boost fees from portfolio companies and investors. More than half of about 400 private-equity firms that the SEC staff examined charged unjustified expenses, Bloomberg reported in April, citing an unnamed person familiar with the findings.

Pension Sleuth

In January, North Carolina’s state employees association hired Edward Siedle, a former SEC attorney and now president of Benchmark Financial Services, to investigate the fund’s investments. Siedle found what he said are hundreds of millions of dollars of undisclosed fees. That led the association to push for legislation that would require information about alternative investments to be disclosed as soon as July.

In a legislature that has used its veto-proof Republican majority to pursue an agenda of tax and service cuts that set off weekly protests at the statehouse, the pension battle is striking for its bipartisanship.