The board should approve investing 15 percent of its assets in hedge funds, which would offer good returns and low volatility, according to a recommendation in an October memo from William Coaker, the fund’s chief investment officer.
“Hedge-fund returns have been more consistent,” Coaker wrote. “They have provided good protection in market downturns.”
Calpers, the largest U.S. pension, last month announced plans to pull its entire $4 billion in hedge-fund investments, citing their expense and complexity. Other pension plans, including those in New Mexico, Ohio and Illinois, said they don’t plan to exit the asset class. New Jersey’s state pension fund in June said it had added $1.1 billion to hedge funds since the start of its 2014 fiscal year.
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 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 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 Orange County Employees Retirement System has $1 billion of its $7 billion pension plan invested in hedge funds, according to the Coaker memo.
“Their hedge fund program has done a very good job of protecting capital in down markets while nearly earning the same return as global equities since the program began in May 2005,” he wrote.
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