By David G. Barry
The Iowa
Public Employees’ Retirement System (IPERS) and the Alaska Permanent
Fund Corporation (APFC) are each attempting to address significant staffing
issues.
The IPERS’ Investment Board gave CEO Greg Samorajski approval to seek $5.4
million, more than double the investment management unit’s annual budget of $2.4
million.
The request will be included in the governor’s budget and considered through
the annual legislative process.
In a report to the board, Samorajski said that the system is “facing new
challenges” as assets under management have increased to $40.1 billion and the
team “seeks to implement increasingly sophisticated investment strategies that
span private credit, infrastructure, alternative risk premium capture, portable
alpha, and liquid absolute return strategies.”
To handle these new strategies, IPERS would like to hire six additional
investment staff at a cost of $1.5 million and to implement an incentive
compensation program that would cost $1.47 million annually.
IPERS, like all Iowa state agencies, has been unable to add staff over the past
10 years because of a mandate for “static,” or flat, budgets. However, during
that time, IPERS’ assets have increased 84%, retired members are up 27% and
active members have risen 6%.
In his statement, Samorajski said that “a static budget is no longer adequate
for IPERS to serve the best interests of its members.”
According to CEM Benchmarking, IPERS’ administrative costs were either the
lowest or second-lowest in its peer group. Its total investment fees as a share
of the value of the assets under management are also less than half of its
peers.
With seven members on its investment team, IPERS has one of the smallest, if
not the smallest, team managing a public pension fund of its size. Investment
income has historically accounted for 72% of all trust fund revenue. The $2.4
million flat budget would only cover current IPERS’ investment staff salaries
and certain administrative costs. The roughly $60 million that is paid in
investment expenses is not subject to appropriation.
IPERS’ overall static budget is $18.4 million. The overall budget request would
up that to $23 million. The enhanced total also includes $1.5 million for the
Service Delivery unit.
The request comes at a somewhat unfortunate time for IPERS as it reported a
return of negative 3.9% for the fiscal year ended June 30, beating its policy
benchmark by 0.15%. IPERS does not include the results of its private
investments in the calculation of its returns versus its policy benchmark. The
system has an approximate funded ratio of more than 85%.
APFC is in a similar position, ending the fiscal year with assets of $76.3
billion after returning negative 1.32%. It also underperformed its total return
benchmark objective, which is the Consumer Price Index (CPI) +5%.
APFC, which has struggled over the last year to keep its team fully staffed,
received approval from its board to submit a request to increase its operations
allocation from $22.6 million to $25.7 million. Of the more than $3 million
increase, $2.4 million would go towards a 6% merit increase and $1.1 million
would be for expanded incentive compensation.
The corporation, according to materials presented to the board, is currently
seeking to fill 19 positions, or a third of its 67 full-time positions. Of
those 19, eight are on the investment side. The most notable of those openings is
head of private equity. The person previously in that role, Steve Moseley, left
this summer to become a managing director with Wafra Inc.
One thing that should help APFC get the necessary approval from the legislature
is that the proposed budget increase is being offset by a $3 million decline in
investment fees. APFC is terminating all external fixed income managers and
transferring those assets to internal management, resulting in a reduction of
$8.5 million. However, fees paid to alternative asset managers are projected to
increase by $2.3 million. As a result, APFC’s budget request is for $83,567.