The Public Employees’ Retirement System of Iowa is on the hunt for service providers that can help grow its first in-house investment program.
Last week, the $43.7 billion pension plan released two requests for proposals, announcements that alert outside firms that the organization is looking for specific services. One of these was for a managed account platform provider to help implement IPERS’ two newer programs: its liquid absolute return and alternative risk premia strategies.
The alternative risk premia program was approved by the IPERS board in December 2020 as the system’s first internally-managed program. According to the 2020 memo, the program started with a “relatively modest” amount of exposure at $300 million, but “could be expanded in the future as the program proves itself.”
The RFP aims to build out this program with the help of external operational services, but the investments will continue to be done in-house. The program will invest in systematic trading strategies through derivative contracts, or swaps. Ideally, the program will have low correlation to traditional asset classes.
According to chief executive officer Gregory Samorajski, IPERS is able to run alternative risk premia investments in-house thanks to its chief investment officer’s specific expertise in the area. Sriram Lakshminarayanan, who was appointed to the CIO position in January, started as IPERS’ chief risk officer, a position in which he ran a $500 million liquid hedge fund/CTA overlay program, II previously reported. He also designed the alternative risk premia program.
Samorajski added that IPERS also has “expert” support staff working on the program.
“It really was a sense of wanting to get exposure to factors in a very low-cost way,” he said. “A lot of active managers are really earning or not earning money based on their exposure to factors. And we feel we can get the same exposure to those factors in-house at very low costs.”
The managed account platform provider sought by the RFP would also support IPERS’ liquid absolute return strategy, a managed-futures account program that is externally-managed and uses highly liquid, systematic absolute return strategies, like commodity trading advisors, foreign exchange, and global macro. The program works as an alpha overlay on IPERS’ cash allocation. In 2021, the program was managed by five external managers, including Fort, Graham Capital Management, P/E Global, WadHwani Asset Management, and Welton Global.
IPERS also issued a second RFP calling for varying due diligence service providers to parse through the system’s non-custody (or outsourced manager-driven) investment programs. Essentially, IPERS is looking for a firm to conduct operational due diligence on managers including private markets investors, limited partnership providers, and hedge fund managers — managers who oversee the investments in IPERS’ outsourced strategies, like its liquid absolute return strategies, portable alpha strategies, and private markets program.
In an investment board meeting in December 2021, IPERS outlined its private market program, to which it plans to commit $3.125 billion in the calendar year 2022.
“We have private investments in equity, credit, and real assets,” Samorajski said. “For private equity, we have a gatekeeper company called Pathway who selects our limited partnership investments. For private credit, which we’ve been adding to recently, we do our own selection of limited partnerships.”
He estimated that they had 12 new private credit investments either on board or in the works.
For its real asset investments, the pension fund uses external managers to invest in real estate and infrastructure. Looking ahead, Samorajski said the investment team is considering putting out an RFP for additional real assets as a way to address the risk of inflation.
