Between July and December 2025, a new tactical asset allocation (TAA) at the $46 billion Iowa Public Employees Retirement System (IPERS) has earned between $10-15 million, according to chief investment officer Sriram Lakshminarayanan.
Speaking to Top1000funds.com in an interview alongside IPERS’ chief executive officer Gregory Samorajski, Lakshminarayanan explained that the TAA strategy runs at about 10 per cent of volatility on a pool of assets which are all margin funded.
IPERS most recent board documents show that the staff-directed trades program earned 8.36 per cent for the third quarter of 2025 – the highest-performing allocation on IPERS’ alpha scorecard across all active management for that period.
Lakshminarayanan says it’s the first time the investment team have gone live with an internal idea that has made money in its early months.
“We are hopeful that this trend continues for all such initiatives,” he adds.
TAA is part of a three-pronged active risk strategy in public markets at IPERS that includes a portable alpha allocation – likely to be expanded with more mandates soon – and an allocation to alternative risk premia (ARP) comprising different bank premia.
Although this allocation has struggled because markets are “irrationally exuberant”, Lakshminarayanan remains committed to a strategy that he argues will come into its own when markets show signs of stress.
Lakshminarayanan says his approach to TAA is distinct from those investors who simply over-weight and under-weight assets in a portfolio. IPERS runs a systematic process that trades about 30-35 different futures instruments using an in-house algorithm.
“When we talk about TAA, we are not talking about going long equity for 2 per cent for the next six months because of the macro climate. Ours is a systematic, CTA type strategy.”
IPERS joins a growing cohort of investors that are tapping a similar seam by deviating from their long term strategic asset allocation to take advantage of short to medium term market trends to increase diversity or bolster returns. But TAA at IPERS has been years in the making. The strategy had run on a paper basis for two and a half years before going live in July, and was originally presented to the board over ten years ago.
Trustees were “very buoyant” on TAA since day one, and governance and permissions were procured a long time ago. The long gestation period has been due to constraints around staff and IPERS ability to hire people and put together the required systems, he says.
“It’s okay for a strategy to experience a draw down and not make money all the time because of the market environment, but it’s not okay to be forced to turn off a strategy because operationally you’re not capable – if you have to turn it off because of data or an operational issue, it reflects very poorly on staff,” he says.
In the latest adjustment to its long-term strategic asset allocation, IPERS reduced its total growth assets to 51 per cent from 56 per cent. It announced the removal of a 5 per cent global smart beta allocation to fund an increase in total defensive assets to 25.5 per cent from 23.5 per cent focused on core (plus) fixed income.
Innovation in action
CEO Samorajski believes TAA reflects a determination to innovate and push the boundaries of investment that has come to define strategy at IPERS and helped support a 92 per cent funded status. He says the philosophy was visible over 30 years ago when IPERS became an early adopter of private equity investments.
“We do try to innovate, and the board allows it. We have a structure that allows innovation and very few restrictions by statute, and the board gives us freedom as long as we keep them informed,” he says.
A new co-investment seam in private credit, also launched in July, is another example of innovation in action.
Since then, IPERS has accepted around 5 per cent of the GP deals presented to the team via three initial commitments (pending legal review) totalling $50-60 million out of a budget to invest around $200 million.
“We have a lot of room left,” says Lakshminarayanan, explaining that one reason for the slow deployment is the small investment team of nine people, of whom only three to four are focused on private markets. Co-investment opportunities are sometimes attached to a rapid, one/two-week turnaround but concerned by the volume of money chasing after private credit, due diligence and finding the right partners can’t be rushed.
“It might not always work out for us because of the existing workload we have,” he says.
Co-investments must also bring ballast to the overall private credit portfolio. “If we find we are getting concentrated in one sector/direction with our GPs, we use the co-investment programme to select other deals and different GPs to act as a lever and bring diversification to control some of the risks.”
IPERS approach to fees in private markets also underscores a different outlook: rather than pay fees, IPERS charges them.
“Whenever a manager comes with an alpha strategy of some sort, we ask ‘if the strategy is as good as they claim, why are they selling it to us?’” he questions.
The ensuing discussion sets a hurdle rate where IPERS will always earn at least a T-bill interest rate, plus a share of the profits.
“We allow our managers to keep a share of the profits for using our money. We charge fees rather than pay fees, doing that gives us one of the lowest fee structures of public plans in the US.”
According to recent board documents, total investment management expenses decreased 33.1 per cent over the last year, including a fall of 35.3 per cent in investment manager fees.
Today, Samorajski is looking at innovative ways to support the investment and back office teams in increasing efficiency with AI, and nurture and hold onto talent. For example, he is exploring ways to build the investment team that includes strategies to attract retirees back into work.
“Going forward, the largest population growth will be amongst the 65s and over. The new workforce is going to be folks who we think of retirement age and we need to figure out ways to bring people back,” he concludes.
