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San Francisco Pension Votes to Engage With Fossil Fuel Companies Over Climate Change; Next Step Could Be Divestment

The Board of the San Francisco Employees’ Retirement System (SFERS) voted Wednesday to begin engaging with the fossil fuel companies in which it invests.

The vote opens the door for an eventual vote on divesting from fossil-fuel companies altogether – an idea that is sure to receive mixed reviews from board members and city officials.

The pension fund currently holds about $540 million in fossil fuel companies, which accounts for less tan 4 percent of the fund’s entire portfolio, according to SF Gate.

More details from SF Gate:

The board voted Wednesday to go to “level-two engagement,” meaning it will actively attempt to influence the policies of the companies in which it invests. The next step would be to move forward with divesting from the companies.

“If you want to divest, you have to start somewhere,” commission President Victor Makras said. “Our mere size and name brings something to the engagement process.”

[…]

“There is some urgency,” Supervisor John Avalos, who has led the charge, told the board. “We have to take into consideration the real (climate) changes that are happening overnight.”

The counterargument is that stocks of fossil fuel companies are a component of most major index funds, and divesting from them could limit pension-fund revenues that pay for the retirement benefits of thousands of city workers.

“I don’t think I’m in a position to do that,” said Commissioner Brian Stansbury, the only one of seven board members to vote against moving to level two. Stansbury, a San Francisco police officer, expressed concern that moving the money out of fossil fuel assets would be “financially risky.”

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

Photo by ilirjan rrumbullaku via Flickr CC License

San Francisco Pension Weighs Larger Emphasis on Local Real Estate

The San Francisco Employees Retirement System is deciding whether to increase its allocation to real estate in the San Francisco Bay Area.

Specifically, the board is weighing whether to begin allocating up to 3 percent of its assets toward such investments.

However, the area’s high real estate prices warrant caution, according to the fund’s advisors.

From Investments & Pensions Europe:

A 3% target allocation to real estate in the nine-county San Francisco Bay Area – first mooted by the retirement board in 2013 – is still being mulled by the pension fund.

No plans were approved at a meeting this month. Its advisers, Angeles Investment Advisors and Cambridge Associates, warned against over-concentration in its real estate porfolio at a time when the pension fund is looking more broadly at real assets.

A recent board meeting document stated: “SFERS private markets team and Cambridge Associates recommend maintaining a broad allocation to real assets rather than carving the category into several pieces such as infrastructure, natural resources, or San Francisco-based real estate.”

[…]

Investment staff will approach managers active in local real estate and evaluate the merits of entering into local co-investments with them.

The staff will also explore whether there are further efforts it can undertake to source and evaluate San Francisco-based real estate investment opportunities with attractive valuations and good prospective returns.

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

Photo by ilirjan rrumbullaku via Flickr CC License

San Francisco Pension Investment Staff Recommends Foray Into Hedge Funds

The investment staff of the San Francisco Employees’ Retirement System (SFERS) has recommended to the board that the system allocate up to 10 percent of its assets in hedge funds.

SFERS has been waffling for a year over whether or not to put money into hedge funds, and what the allocation should be.

From Bloomberg, via FinAlternatives:

The San Francisco Employees’ Retirement System staff is recommending its board consider investing 10 percent of assets in hedge funds.

[…]

The staff said it also could support a 5 percent hedge-fund allocation for the $20 billion city pension, according to a memo sent to the board from William Coaker, the chief investment officer. The board is scheduled to consider the recommendation at a Feb. 11 meeting in San Francisco.

“Many of the objections we have heard about hedge funds are at best an incomplete picture,” Coaker’s memo said. “Hedge funds have less than half the volatility of the equity market. Transparency is improving in the hedge-fund industry as a whole.”

The San Francisco pension board in December postponed a decision on adding hedge funds to its investment mix and asked staff for a more detailed analysis ahead of this month’s meeting. The fund isn’t currently invested in hedge funds, which are loosely regulated investment pools that are generally open only to high-net-worth and institutional investors.

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

Photo by ilirjan rrumbullaku via Flickr CC License

San Francisco Pension Postpones Appointment of Board Member in Wake of Ethics Complaint

San Francisco’s former first lady Wendy Paskin-Jordan sits on the board of the San Francisco Employees’ Retirement System (SFERS); her seat is appointed by city mayor Ed Lee, who was ready to appoint her to another term.

But an ethics complaint has put Paskin-Jordan’s appointment “on hold”. The details of the complaint:

The main issue discussed Tuesday was her investment in Grantham, Mayo, Van Otterloo and Co., an investment firm, in which the employees’ pension fund has invested $388 million. In a required financial disclosure statement filed last year, Paskin-Jordan reported she had invested between $100,000 and $1 million in GMO in August 2011. That amount, however, is below the company’s minimum investment threshold of $10 million.

City law prohibits board members from investing in private equity, limited partnerships and in nonpublically traded mutual funds doing business with the Employees’ Retirement System. Additionally, city law prohibits a board member from soliciting or accepting “a business opportunity, a personal loan, a favor or anything of value from any public entity or firm doing business with SFERS.”

Paskin-Jordan has been out of town recently, but the rest of the board wants to give her a chance to explain the situation for herself in front of the board. Meanwhile, she has the support of the retirement system’s Executive Director. From the SF Examiner:

In a Dec. 8 letter to the Ethics Commission, retirement system Executive Director Jay Huish argues that both these laws were not broken by Paskin-Jordan’s investment.

Huish noted that GMO is considered a manager of public-market assets, and that Paskin-Jordan had received a threshold waiver to invest in GMO from her former employees who went on to work there. That waiver, Huish said, was granted before she was appointed to the board and exercised after she was on the board.

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

Photo by ilirjan rrumbullaku via Flickr CC License

San Francisco Pension Backs Off Hedge Funds After Conflicts of Interest Surface

San Francisco Employees’ Retirement System (SFERS) was set to vote yesterday on whether the fund should allocate up to 15 percent of assets, or $3 billion, to hedge funds.

But the vote never happened, in part because of the objections of union members and retirees who showed up to the meeting. Recent reports of conflicts of interest surrounding the hedge fund investments probably didn’t help, either.

From the International Business Times:

San Francisco officials on Wednesday tabled a proposal to move up to 15 percent of the city’s $20 billion pension portfolio into hedge funds. The move came a day after International Business Times reported that the consultants advising the city on whether to invest in hedge funds currently operate a hedge fund based in the Cayman Islands.

The hedge fund proposal, spearheaded by the chief investment officer of the San Francisco Employees’ Retirement System, or SFERS, had been scheduled for action this week. If ultimately enacted, it could move up to $3 billion of retiree money from traditional stocks and bonds into hedge funds, potentially costing taxpayers $100 million a year in additional fees.

Pension beneficiaries who oppose the proposal spoke at Wednesday’s meeting of the SFERS board. They cited financial risks and the appearance of possible conflicts of interest in objecting to the hedge fund investments.

Prior to the meeting, the Service Employees International Union, which represents roughly 12,000 members who are eligible for SFERS benefits, asked city officials to have the hedge fund proposal evaluated by a consultant who has worked with boards that have opted against hedge funds.

David Sirota reported on the possible conflicts of interest earlier this week:

[SFERS is] drawing on the counsel of a company called Angeles Investment Advisors, one of a crop of consulting firms that has emerged across the country in recent years to aid municipalities in navigating the murky waters of managing money.

For two decades, Angeles has been employed by the San Francisco pension system to champion the best interests of city taxpayers and employees — the cops, firefighters and other municipal workers who depend on pension payments after their retirement. But the firm is concurrently playing another role that complicates its image as a disinterested guide: An International Business Times review of U.S. Securities and Exchange Commission documents has found that since 2010, Angeles has run a hedge fund based in the Cayman Islands that invests in other hedge funds.

In other words, the consultants that are supposed to be providing unbiased advice about whether San Francisco would be wise to entrust its money to the hedge fund industry are themselves hedge fund players.

SFERS says that, although the vote is tabled for now, it could be brought back at a later time.

This isn’t the first time the pension fund has delayed voting on hedge fund investments. In fact, it’s the third time: the board first delayed the vote in June. Then it delayed the vote again in August.

San Francisco Pension Fund Votes Today On Whether To Invest in Hedge Funds

San Francisco Employees’ Retirement System (SFERS) will vote later today on whether to invest in hedge funds for the first time.

If the board votes “yes”, the fund will have the ability to allocate up to 15 percent of its assets toward hedge funds. Reported by Bloomberg:

The hedge fund proposal stems from a June meeting when staff recommended changes to the fund’s asset allocation and the board voted to take 90 days to study options. At a meeting last month, staff suggested shifting the allocation to invest 35 percent in global equity, 18 percent in private equity, 17 percent in real assets, 15 percent in fixed income and 15 percent in hedge funds, according to the [fund CIO] Coaker memo.

The retirement system administers a pension plan and a deferred-compensation plan for active and retired employees. Retirement members include those who had worked for the City and County of San Francisco, the San Francisco Unified School District, the San Francisco Community College District and the San Francisco Trial Courts.

Herb Meiberger, a commissioner and retirement board member, last month called for keeping hedge funds out of the mix. Hedge funds are complex, difficult to understand and carry high management fees, he said in a September memo.

“SFERS is a public fund subject to public scrutiny,” Meiberger wrote in the memo. It’s “one of the best-funded plans in the United States. Why change course?”

[…]

The San Francisco fund had $17 billion in assets based on market value and an unfunded liability of 15.9 percent as of July 1, 2013, a decline from 21.1 percent a year earlier, according to its most recent actuarial valuation report.

The chief investment officer of SFERS, William Coaker, recommended approving hedge funds in a memo this month.

“They have provided good protection in market downturns,” he wrote.