DES MOINES - The Iowa Public Employees' Retirement System has terminated a contract with a California investment management firm under federal investigation and demanded the return of $339 million in assets.

Those assets have been frozen as a result of the investigation.

"I'm not putting any sugar on this one," said State Treasurer Mike Fitzgerald, a member of the IPERS Investment Board and fund custodian. "I'm very, very concerned. We have at least $300 million at risk here."

IPERS spokeswoman Julie Economaki said the action was taken against Westridge Capital Management of Santa Barbara, Calif., which has managed about 2 percent of IPERS' investment portfolio since March 2007 as the result of a competitive selection process.

Westridge Capital Management, a registered investment adviser, completes transactions through WG Trading, a registered investment broker-dealer.

Economaki said concerns came to light earlier this month when the National Futures Association, an organization that regulates its own members, suspended the trading capabilities of two individuals who are principals in both WG Trading and Westridge Capital Management and who have not provided documents requested by the NFA.

Subsequently, the U.S. Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission - federal regulatory agencies - are now investigating WG Trading but cannot release information during an active probe.

Economaki said the involvement of federal investigators provides IPERS added protection as the commissions have the authority to act in ways that will protect investors.

The developments do not affect IPERS' ability to pay benefits and they do not affect IPERS' other investments, she added.

"We don't want to scare anybody because we don't know if there's any loss," Economaki said. "Anytime there is an investigation, the responsible thing to do is to terminate the contract and seek our money back."

To date, IPERS officials have terminated Westridge Capital Management's contract and demanded the return of all IPERS' assets which had an estimated market value of $339 million on Jan. 31, she said.

The Iowa retirement system also has filed a claim with the National Futures Association for a release from the trading ban so holdings can be liquidated and IPERS' assets returned and has begun aiding federal regulators in their investigations.

Fitzgerald said IPERS - which reported overall assets of about $18 billion last December - was one of 16 funds that had investments in the California hedge fund. Some of the other investors already have brought legal action, he noted.

According to an IPERS statement posted on its Web site (ipers.org), the IPERS Investment Board and staff continue to follow developments and will take further action, including legal action, if necessary to protect IPERS' assets. The investment board's policy is "to vigorously seek recovery of losses through legal action should losses occur because of fraud."

However, IPERS officials cautioned that investigations are still under way, and there have been no findings against the company previously under contract to IPERS, according to the statement.

Contact Rod Boshart at (515) 243-7220 or rod.boshart@gazcomm.com