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.