“Sriram’s quantitative and analytical skills are exceptional, but his greatest quality is his ability to help others understand risk and if they are getting paid for taking it.”
—Karl Koch, CIO, Iowa Public Employees’ Retirement System
Sriram Lakshminarayanan sailed into this year’s NextGen roster on the tailwinds of hard work and success in quantitative analysis of managers, markets, sectors, and currencies. As chief risk officer at Iowa Public Employees’ Retirement System, Sriram embraces the challenges of volatility in the markets and leverages them as opportunistic areas to add value to his portfolio.
Sriram took to asset management after almost a decade working as a money manager at Mcube Investment Technologies, a developer and provider of decision support products for institutional investment management. Always seeking to explore asset management and allocation in depth, when offered the opportunity to work across a number of different industries and sectors, Sriram shifted to IPERS.
Earning a master’s degree in industrial and systems engineering and a bachelor’s degree in mechanical engineering, Sriram discusses with CIO how to deploy a wide range of skillsets into a formidable investment strategy.
CIO: What makes 2019 an interesting investing climate? How are you handling it?
Lakshminarayanan: Vol is back! After a couple of years of relative calm, volatility seems to be rearing its head. We view these times as opportunities in value creation and are seeking to deploy meaningful amounts of active risk across a spectrum of assets.
CIO: After this year, what are the largest opportunities and the largest threats you see on the horizon?
Lakshminarayanan: I firmly believe that large opportunities usually present themselves after a vol spike. Markets tend to behave irrationally, especially when everybody is running for the hills and investors with a long-term perspective (like a public pension fund) are best poised to take advantage. I am most worried about a fundamental rewiring of our capital markets and changes in the supply-demand relationships due to trade wars. I don’t think investors have fully grasped the potential long-term impact of a trade spat between economic superpowers.
CIO: How did you arrive at your current position? And why did you choose this part of the financial services industry?
Lakshminarayanan: I worked for about 10 years in an investment management company doing systematic global macro-type investing using derivatives. The work was challenging and loads of fun but narrow in scope. I wanted to see if I could translate a few of the skills learned while managing money to the asset owner space. Also, it’s easier to work for an asset owner than to raise $32 billion, I mean where else is one going to get an opportunity to have a $32 billion sandbox?
CIO: What was the most important strategic allocation of your career?
Lakshminarayanan: Smart Beta. Not because of what we did, but more because of what we did not do. It was challenging to cull through all the offerings out there. I mean seriously, everybody and their grandmothers have a product and an opinion on how asset owners should deploy it. We went back to the three basics: long-term, low-cost, and simple. It seems to be working, fingers crossed.
CIO: Tips for money managers who want to work with you, especially what not to do.
Lakshminarayanan: Stop pretending to be the panacea to every investment problem and no, we won’t believe you when you send us an email that you just happen to be visiting Des Moines in December. It’s more valuable for me to talk to the portfolio manager over the phone than to play BS bingo with a salesperson in the flesh. Also, if I had a dime every time a manager offers to be an extension of staff, I would be richer than Warren Buffett.
CIO: Biggest goof a money manager has made with you?
Lakshminarayanan: Most money managers don’t realize that I am a recovering quant, so naturally when they walk in with some highly questionable statistical inferences, I oh-so-love tearing them apart. Most memorable would definitely be this one time where I was told that private equity returns for a year were less risky than public equity because they computed the standard deviation of four quarterly return numbers and found it to be smaller than public equity. I had to excuse myself to make sure that I wasn’t in a dream. RIP Carl Friedrich Gauss.
CIO: Who in the financial world would you like to have lunch with and why?
Lakshminarayanan: Jim Simons. Pick his brain on how best to apply mathematics to solve asset owner problems.
CIO: What are changes you’d like to see the institutional investing community make in 10 years?
Lakshminarayanan: A genuine alignment of interest between asset owners and investment managers. Simplistically, it starts with managers paying asset owners for the use of their capital.
CIO: What are your hobbies not correlated to work?
Lakshminarayanan: I love working on cars and any kind of mechanical tinkering.
I have a humming basement that the wife hates—I’ve built my own “cloud” using old servers on eBay. My extended family seem very grateful for all the pictures and music I share with them.
More recently am trying to up my game in the home renovation department by redoing our master bath, plumbing, tile, and all.
CIO: What are the three things you’re most known for professionally?
Lakshminarayanan: Systematic, persistent and a tough negotiator.
