San Francisco Pension To Vote Again On Hedge Funds

The San Francisco Employees’ Retirement System is once again weighing whether to begin investing in hedge funds.

Last Spring, the fund formulated a plan to invest up to 15 percent of its assets, or $3 billion, in hedge funds. But the vote has been tabled three times since then.

This week, the fund will vote again on the issue.

From SFGate.com:

The board of the San Francisco Employees’ Retirement System is scheduled to vote Wednesday on a controversial proposal to invest $3 billion — 15 percent of its assets — in hedge funds. The system, which manages $20 billion in pension money on behalf of about 50,000 active and former city employees, has no hedge funds today.

[…]

A 15 percent allocation would definitely have an impact on the San Francisco pension fund. William Coaker Jr., who joined the system Jan. 30 as chief investment officer, wants to put 15 percent of its assets in hedge funds as a way to protect against a market correction. But some board members and pensioners see them as too expensive and risky.

[…]

Earlier this year Coaker and his staff, along with outside consultant Leslie Kautz of Angeles Investment Advisors, recommended investing 15 percent of the system’s assets in hedge funds as part of a realignment of its portfolio. The goal was to “reduce volatility in investment returns, improve performance in down markets, enhance diversification of our plan assets, increase the flexibility of the investment strategy, and to increase alpha (excess returns),” according to minutes of the June 18 meeting. Coaker did not return phone calls.

A vote on the measure was scheduled for October but shortly before the meeting, board President Victor Makras learned that Kautz’ firm has a fund of hedge funds registered in the Cayman Islands. “That was a material fact,” Makras said. “I continued the item and instructed the consultant to disclose that to my satisfaction.”

If the fund does vote to invest in hedge funds, there would be the following allocation changes, according to SFGate:

U.S. and foreign stocks would drop to 35 percent from 47 percent of assets. Bonds and other fixed-income would fall to 15 percent from 25 percent. Real estate would rise to 17 percent from 12 percent. Private equity would rise to 18 percent from 16 percent. And hedge funds would go to 15 percent from zero.

The San Francisco Employees’ Retirement System manages $20 billion in assets.