The San Francisco City and County Employees’ Retirement System’s board has voted 6-1 to move 5 percent of its $20 billion fund into hedge funds.
It’s a win for hedge fund proponents, sort of. Last year, some of the fund’s staffers were pitching a 15-percent allocation.
That recommendation, however, drew the ire of participants in the plan, who voiced their concern over hedge funds’ high fees and secrecy. CalPERS’ decision to divest its entire hedge fund allocation in September – $4 billion worth of investments – fueled the debate over the appropriateness of hedge fund allocations in retirement funds.
To account for the new hedge fund allocation, SFERS’ U.S. and foreign stock holding will be drawn down to 40 percent of the portfolio, from 47 percent, and private equity investments will increase to 18 percent from 16 percent, according to reporting in Sfgate.com.
Fixed-income exposure will also be reduced, to 20 percent from 25 percent.
In a memo, William Coaker, SFERS’ chief investment officer, said the board took participants’ concerns into consideration, but that the fund’s staff believes hedge funds “can play an important role to increase the stability of our funded status, improve our performance in down markets, reduce volatility and increase returns over the broad market.”
The fund is 92 percent funded -- higher than most and certainly better than the state pension system’s 81 percent.
Globally, hedge funds posted underwhelming returns in 2014. The asset classes’ 3.78 percent return, its lowest since 2011, lagged the Dow Jones Industrial Average, which posted a 7.5 percent return in 2014.
That, however, did not deter investors. Total assets in the funds grew to $3.02 trillion worldwide, up from $2.66 trillion the previous year, according to data from Preqin, a data provider on alternative asset investing.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
