Iowa Public Employees’ Retirement System Increases Private Equity Allocation Target

By David G. Barry

For the second time in the past three years, the Iowa Public Employees’ Retirement System (IPERS) has gotten the green light to increase its private equity allocation target.

The IPERS’ Investment Board voted to increase the segment’s target from 13% to 17%. In 2020, the board increased it from 11% to 13%. A key reason for making the move is that the $40.1 billion system’s actual allocation to private equity was 21% as of June 30.

Private equity also has been a significant performer for the system, returning more than 68% for the 2020-2021 fiscal year and 23% for the 2021-2022 fiscal year.

In a statement, IPERS CEO Greg Samorajski said that “private equity’s historically strong performance means the current asset allocation exceeds the current policy target. To avoid rebalancing illiquid assets and potentially diminishing the portfolio’s value, and to ensure vintage year diversification, the Investment Board responded with action that brings the allocations more in line with IPERS’ actual targets.”

Wilshire Advisors, IPERS’ consultant, had recommended that the private equity target be increased to 18%. Instead, the board voted to move it to 17% and increase private real assets from 8.5% to 9.5%. IPERS’ actual allocation to real assets was 9% as of June 30.

As a result, IPERS’ target allocation to private markets will increase from 29.5% to 34.5%. The third part of IPERS’ private markets portfolio – private credit – will stay at its 8% target. It had a 4% actual allocation as of June 30.

To increase the private equity and private real assets sectors, IPERS decreased U.S. equities from 22% to 21%, international equity from 17.5% to 16.5%, global smart beta from 6% to 5%, fixed income from 20% to 19%, and public credit from 4% to 3%.

For the fiscal year ended June 30, IPERS had a return of negative 3.9%, 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%.