San Francisco commits record amount to PE in 2015

  • SFERS approves $1.5 bln, secures $1.2 bln of commitments
  • Commitment pace exceeds TorreyCove recommendation by 20 pct
  • PE portfolio generates negative cash flow for first time since 2009

San Francisco Employees’ Retirement System committed more capital across more funds in 2015 than in any other year in its private equity program’s three-decade history, earmarking $1.19 billion, a report included in its July 13 meeting materials shows.

The total surpassed the maximum commitment pace that consultant TorreyCove Capital Partners recommended by almost 20 percent, the report said.

Last spring, TorreyCove analyzed the city’s portfolio and recommended the $20 billion pension system commit $800 million to $1 billion to the asset class in 2015.

San Francisco’s board had already committed as much as $900 million to PE at mid-year. By year’s end the board had authorized another $640 million, bringing total commitments to more than $1.5 billion across 28 funds, subject to final negotiations between the general partners and retirement-system staff.

Commitments below authorization

San Francisco eventually finalized commitments on 23 of the 28 funds, according to the report. Several commitments to venture capital funds, which San Francisco counts toward its private equity allocation, were for less than the full amount the board had authorized.

The report did not disclose the names of the funds to which San Francisco committed in 2015.

Like many public pensions, San Francisco’s retirement system benefited from a prolonged period of positive cash flows generated by PE. Distributions, the money the city generated from its investments, outpaced capital calls issued by general partners for five consecutive years from 2010 to 2014, according to the report.

The wave of distributions kept the retirement system’s allocation to private equity well below its target, even as its annual commitments soared north of $1 billion. As of March 31, San Francisco had 13.33 percent of its assets in PE and VC, 2.67 percentage points under its 16 percent target.

The private equity portfolio’s cash flows last year dipped into negative territory for the first time since 2009. GPs called $611 million for new investments and returned $518 million in distributions.

Retirement System Chief Investment Officer Bill Coaker did not respond to several requests for comment.

Action Item: The SFERS report: