When officials entrusted with public pension funds invest it in risky hedge funds or use it to purchase rare coins or take control of an airline, many taxpayers scratch their heads.

Sometimes unusual investments work out. Sometimes they flame out. And sometimes the public has no knowledge of how the investments are made or how they fare.

But they certainly raise the question of who's minding the store when it comes to the $2 trillion held in state and municipal pension plans across the country, or in less visible funds such as those used to pay workers' compensation benefits. And what, if any are the rules that permit these gambles?

In Ohio, officials last week were seeking answers and taking action as they sued Pittsburgh-based money manager MDL Capital Management, alleging fraud and breach of contract, in the wake of disclosures that MDL founder Mark D. Lay invested funds in risky hedge funds and lost two-thirds of a $355 million investment it managed for the Ohio Bureau of Workers' Compensation.

It isn't as though public pension funds don't have oversight: Most have boards of trustees, formal investment policies -- sometimes set by statute -- and, often, committees to either directly approve asset purchases or hire money managers to do so on pre-agreed terms.

But public funds are not subject to the same federal scrutiny as private pensions, the majority of which are protected by a federal insurance plan. And sometimes the investments they make or the money managers they hire vault into headlines when political favoritism is suspected -- or found.

Those who work closely with public funds contend cronyism is the exception, not the rule. They also argue that the tiny bets on oddball investments that some public funds make often are placed for the same reasons -- and to the same effect -- as risky investments made by private interests: enhancing overall returns.

"I find the people we deal with take their fiduciary responsibility very seriously," said Fred Nesbitt, director of the National Conference on Public Employee Retirement Systems, a nonprofit advocate for public pension plans. "There are some isolated cases of people not using common sense, or getting greedy."

Robert Strauss, a public policy and economics professor at Carnegie Mellon University, was more skeptical. He said that cases of "self-dealing" -- in which public pension trustees or their associates benefit from a fund's activities -- are not uncommon.

Several years ago, after a couple of high profile cases, including one in which a former Connecticut treasurer and sole pension trustee took kickbacks from fund managers, the Securities & Exchange Commission drafted rules aimed at preventing such "pay to play" practices among public funds. The rules were never adopted.

But the pressure for public pension plans to perform have only increased since, because the stock market implosion at the beginning of the decade shook the finances of so many, and because baby boomers will soon be looking for pension plans to pay out.

According to the Ohio Bureau of Workers' Compensation, MDL lost $215 million in 2004 by investing bureau funds in a risky hedge fund that bet wrong on the direction of interest rates. Ohio officials said hedge fund investments, at the time the investments were made, were not permitted under MDL's contract or under its broader investment policies. MDL has said it acted within the provisions of its contract.

That dispute notwithstanding, experts said investing in hedge funds has become a common practice even in the once-staid realm of public pensions, where 25 years ago, even stocks were barely held.

"Certainly in the case of investing in a coin collection, we shake our heads and wonder what the hell they're doing," Nesbitt said. "But in the case of a hedge fund, we don't as long as they have an asset allocation system and a balanced portfolio."

An annual survey from the National Association of State Retirement Systems Administrators of public pension funds shows the average state plan allocates 60 percent of its assets to stocks, 30 percent to bonds, 4 percent to real estate and 4 percent to "alternative" and 2 percent to "other" investments.

It's in the categories of "alternative" and "other" that wild cards -- rare coins, in the case of Ohio's workers' compensation fund or the biggest stake in US Airways, in the case of Alabama's state pension fund -- turn up.

Alternative investments can be used to make mischief. But they also can make money -- potentially lots of it -- or serve civic purposes, such as economic development in a home state or region.

The Ohio Bureau of Workers' Compensation also invested $50 million with Tom Noe, both a respected coin collector in Toledo and also an Ohio Republican Party operative who gave GOP candidates there $70,000 in campaign contributions over the past decade. At least 121 of the coins, worth an estimated $400,000, are missing, according to The Blade, the Post-Gazette's sister newspaper in Toledo.

But the Blade also reported that the coin investment netted the workers' compensation fund a $15.3 million profit -- after Noe's $3.8 million commission.`

Like most alternative investments, a $50 million coin collection amounted to a small fraction of the $16 billion fund. Similarly, the Alabama pension fund's U.S. Airways stake, despite its $240 million cost, was a drop in an oceanic $24 billion fund.

Nesbitt, at he National Conference on Public Employee Retirement Systems, called the Alabama fund's style "adventuresome," compared with most public pensions.

The fund's chief executive officer, David Bronner, has spearheaded scores of investments that made conservative managers blanch -- developing golf courses and office towers, and buying television stations and newspapers outright.

But experts said it was difficult to quarrel with Alabama's overall results: The $24 billion fund has grown from some $500 million when Bronner took control in 1973.

Conversely, there are funds that have erred with too much conservatism. On that extreme, the pension plan for West Virginia's school teachers, for example, suffers still for having missed the stock market's long ride, only to climb aboard too late. The fund had been prohibited for more than a century from investing in stocks because of scandals that occurred in the late 1800s.

As a result, the plan now contains only 22 cents for each dollar it eventually needs to pay beneficiaries. The average state plan has 88 cents for each dollar of future obligations, according to the survey put out by the National Association of State Retirement Systems Administrators.

Nesbitt explained that in West Virginia, "they got in [to stocks] in the late 1990s, which was not the time to get in."