Asset Allocation, Asset Managers, Consultants, Defined Benefit, Governance, Institutional Investors, Pension Funds, Public Funds

Iowa Seeks HY Fixed-Income Manager

The Iowa Public Employees’ Retirement System, with approximately $32 billion in assets under management, has commenced a search for high-yield fixed-income management services from one or more managers. The request for proposals (RFP) for the mandate is due November 6. The move comes despite the fund’s engagement during the summer of a consultant to assist it in evaluating and formulating an in-house asset management operation at the fund. The fund is giving serious consideration to internal management in pursuit of cost savings and better alignment of interests, according to IPERS CIO Karl Koch.

The high yield fixed-income management mandate will be for a six-year period, according to the RFP.  IPERS declined comment on how much money may be allocated to the account(s). The Product is defined as an actively or passively managed, long-only high-yield fixed-income investment strategy that invests at least 80% of the assets in publicly traded corporate debt securities rated below investment grade and is benchmarked against one of the FTSE, ICE Bank of America Merrill Lynch or Bloomberg Barclays high-yield bond market or issuer constrained indices.  IPERS’ preference is for the services to be provided through a separate account structure, but will evaluate commingled fund structures as well, the RFP states.

Wilshire Associates is assisting the fund with the manager search, with several individuals assigned to the IPERS account, according to Koch.

Separately, IPERs is now investigating possibilities with regard to managing at least some of its asset in-house.  In late spring the fund hired Los Gatos, Calif.-based Kalytix Partners to advise on internal investment management services. The firm was engaged to conduct an in-depth review of IPERS’ current governance, policies, investment process, information technology & systems infrastructure, risk management and risk culture. The review was to help to identify any gaps that could hinder development of a global macro team or any other future form of internal management at IPERS, according to fund documents. Kalytix provided a written report addressing potential personnel costs and governance issues associated with the concept on Aug 31. “The report was included in the Investment Board’s meeting materials for the September 19, 2018 meeting, where Kalytix presented and discussed the report with the Board,” according to Koch.

Kalytix’s proposed a flat fee of $110,000.00 for its services, which includes all costs for performing the project.  C&A Consulting and Funston Advisors were also considered for the mandate, but IPERS opted for Kalytix based “on the firm’s proposed cost, industry knowledge and its experience in assisting similar organizations with similar studies,” according to fund documents.

IPERS currently utilizes external investment management firms for the management of all of its investment assets. The fund believes, however, that the use of internal management could reduce the cost of active investment management strategies for the System, and is committed to developing internal management at IPERS as part of its long-term strategic plan, documents said.  The documents continue that, in addition, “IPERS believes the development of an in-house, hands-on investment culture could improve the Investment Division’s skills in hiring, monitoring, and retaining external asset managers. Furthermore, internal investment management would provide better alignment of interests with IPERS’ objectives than external investment management currently does.”

IPERS investment staff proposes initially building an internal global macro investment team, and then based on that experience after a few years, further evaluating the organization’s ability/desire to expand the internal management concept into security selection strategies, private market strategies, etc.

As of Dec. 31, IPERS overall asset allocation breakdown stood at approximately 27% core fixed incomes, 22% U.S. equities, 15% international equities, 11% private equity, 7.5% private real assets, 7% public real assets, 3.5% public credit, 3% private credit, 3% global smart beta equities, and 1% cash.

You may also like...