DATE: March 27, 2009

TO: IPERS Members, Employers, and Plan Sponsors

SUBJECT: Update on terminated investment manager Westridge Capital Management

Iowa Deputy Attorney General Jeffrey Thompson updated the IPERS Investment Board today on IPERS’ former investment manager, Westridge Capital Management. Mr. Thompson leads a legal team working to recover IPERS’ assets that were managed by Westridge. We want to share that update with you.

Listen to Mr. Thompson's entire update. (mp3 recording)

IPERS entered into a contract in March 2007 for Westridge to manage about 2 percent of IPERS’ investment portfolio. IPERS ended its contract with Westridge on February 16, 2009, after learning of regulatory actions against two company executives, which later led to federal fraud charges. Other affected investors reportedly include other public pension funds such as one in North Dakota, university endowment funds, and private retirement plans such as those operated by 3M, Wells Fargo, and CBS.

You may have heard rumors or read news stories that include theories about what happened. Mr. Thompson told the Board that it is too early in the court proceedings to draw conclusions so we must continue to view charges as allegations and theories as speculations.

The legal process takes time and requires patience, and we may not know the outcome for months. We do know:

1. IPERS will continue to pay benefits on time. This case does not affect IPERS’ ability to pay benefits.
2. The U.S. District Court for the Southern District of New York froze the assets of Westridge Capital Management, affiliate companies such as WG Trading, and the individuals involved. This protects IPERS and other investors.
3. The court appointed a receiver, Robb Evans & Associates LLC. The receiver is responsible for identifying and preserving assets.
4. The receiver has liquidated investments to cash.
5. The receiver must file a report with the court by April 27 describing the assets available for distribution, claims that may be filed against the assets, and how long it may take to distribute the assets.
6. Although assets are available to return to investors, the receiver expects a shortfall between available assets and claims that may be filed against the assets. How much the shortfall will be and what part, if any, of the shortfall may be allocated to IPERS are unknown.
7. IPERS’ money was invested according to requirements in the contract with Westridge.
8. IPERS has already recovered $35 million.

Although we cannot share details about IPERS’ legal strategy because to do so could jeopardize the outcome, we can share:

1. The legal team is working closely with federal authorities and the court-appointed receiver.
2. The next significant legal action occurs after the receiver files its April 27 report, when IPERS’ legal team will file a claim with the court to have IPERS’ money returned.
3. The legal team continues to evaluate options that will produce the best outcome for IPERS.

To help you separate rumor from fact, we will share facts as we receive them from our legal team. Check IPERS’ Web site, <www.ipers.org>, for updates. We also will include information in newsletters and send special updates if needed.

Challenges Ahead
The biggest challenges ahead will not come from the Westridge case. The case will remain a priority and we have confidence in our legal team.

The economy has created challenges that are requiring everyone’s patience and perseverance. The recession gripping the country has been unusually deep and it continues.

From January through December 2008, IPERS’ investment return was −20.74 percent. Historically, investments have provided about 70 percent of IPERS’ income. IPERS’ long-term funding projections assume annual returns of 7.50 percent. Although long-term investors can absorb some negative returns, even long-term investors such as IPERS are hurt when markets drop as much as they have. We must start asking what changes may be necessary to sustain IPERS for years to come.

Over the next several months we will talk with employee and employer groups, retirees, legislators, and advisers about how best to preserve dependable and affordable core retirement benefits for tomorrow’s public employees. We welcome your comments and ideas.