San Francisco Pension Not Expected to Approve Hedge Fund Proposal, But Alternate Plan Could Pass

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Trustees of the San Francisco Employees’ Retirement System will vote sometime in the next few weeks on a proposal to invest up to 15 percent of assets – or $3 billion – in hedge funds.

The vote has been proposed and tabled nearly half a dozen times since May.

According to reporting by Pensions & Investments, the proposal isn’t expected to pass a vote – although a toned-down version, where hedge fund investments are capped at 5 percent of assets, has a better chance at passing.

From Pensions & Investments:

The board of the San Francisco City & County Employees’ Retirement System is expected to reject Chief Investment Officer William Coaker’s plan for a 15% allocation to hedge funds at a meeting in the next several weeks and instead limit hedge funds to no more than 5% of the portfolio, sources say.

The board had been scheduled to vote on the hedge fund allocation at a special meeting scheduled for Wednesday.

Board President Victor Makras said in an interview that a new special meeting will be held in the next few weeks. He said he will schedule the meeting as soon as he can poll members for a suitable date.

He said the Nov. 5 meeting was canceled because several board members were traveling out of the country.

The board is also expected, as part of the hedge fund vote, to bar or severely limit the use of leverage by hedge fund managers, a common tactic used by such mangers to increase returns.

Mr. Coaker’s plan would shift assets from fixed income and equities to create the new hedge fund allocation.

If the “15 percent” plan passes, the following allocation changes would occur elsewhere in the fund’s portfolio, 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 currently does not invest in hedge funds. It manages $20 billion in assets.