So Dave is sort of correct in that investing is a "buyer beware" proposition and hedge fund investing in particular places the onus of diligence on the investor, not on investment manager disclosures, but there are a couple of mitigating/complications factors here.
First, the issue of "accredited investors" The pension fund board is likely the only accredited investor here. The total assets in the plan they oversee is the qualifying measure allowing for an assumption of sophistication and resources Necessary to evaluate more exotic Investments. The problem here is that the pension participants almost certainly do not meet the qualifications of accredited investors individually. Treating accreditation as a "pass through" property of investor suitability is a gross lapse in the regulatory structure.
Second, the pension participants here ARE suing the pension board. If the board failed to do the diligence Dave correctly states is their responsibility then they have liability.
The participants here are also suing several of the hedge fund managers. The question of liability for the hedge fund managers could absolutely come down to the sales practices and representations made to the pension board. If the fund managers misrepresented the investments in question, if they described guarantees that didn't exists or promised returns that were not met, they don't get to hide behind "do your own diligence." Misrepresentation and abusive sales practices are still punishable even in the accredited investor space.
The suit apparently also cites the fees charged by the hedge funds and while fees were almost certainly disclosed in the offering, if return guarantees were made in the sales process that would have reduced the impact of those fees if met, then the fees themselves if not usual and customary then the fees themselves could potentially constitute a compounding deceptive practice and abuse.
On the state of pension funds in general, low interest rates have certainly hamstrung pension funds abilities to deliver relatively "safe" returns via long term bonds to meet their actuarial obligations. The lack of viable fixed income
Instruments available to meet Defined Benefit obligations has forced pension funds to seek other sources of return. Sometimes by holding significantly more traditional equities than they would have in a normal interest rate environment, but often by seeking out hedge funds that provide downside protection built around traditional and private equity portfolios. These protections are often the "Black box" in question and not necessarily disclosed or transparent at any meaningful level. They certainly don't disclose their risk management algorithms
In offering memorandums. If hedge fund managers misrepresent what their particular "black box" does under varied market conditions the investor, accredited or not does not have the resources to evaluate the risk return profile of the investment.
Lastly, participant longevity is the single largest contributor to unfounded pension liabilities, not mismanagement. You people live too goddamn long and generating the returns necessary to provide 30 years of retirement income requires significantly more risk than can be realistically guaranteed by any investment strategy. Pension fund boards are out in the position of needing magic beans to solve this problem. Hedge fund managers are selling these beans, some are doing so deceptively and misrepresenting what they sell.