San Mateo doubles projected hedge fund fees in FY 2015-2016

San Mateo County Employees’ Retirement Association paid more than double what it projected for hedge-fund-related fees in the 2015-2016 fiscal year.

The Northern California retirement system, which oversees retirement assets for more than 11,000 members, expected to pay hedge fund managers $1.4 million in the year ended June 30. San Mateo County ultimately paid $3.1 million.

The spike in hedge-fund-related costs contributed to the $3.5 billion retirement system exceeding its overall management fee projections by a little more than $80,000.

Hedge funds, which represent 5.2 percent of the retirement system’s holdings, accounted for roughly 16 percent of its investment-management costs during the 2015-2016 fiscal year. The county’s real asset and real estate portfolios also overran their anticipated management fees last year.

San Mateo County’s private equity holdings undershot expected costs by more than 20 percent. The retirement system paid $3.88 million for its PE portfolio after projecting $4.9 million of fees at the start of the fiscal year.

Many California pension officials have grown increasingly critical of hedge funds and PE in recent years amid investment-cost and transparency concerns. California Public Employees’ Retirement System eliminated its hedge fund portfolio in 2014. In August, the state legislature unanimously approved a bill requiring PE firms to disclose more information about fees and expenses charged by their funds.

While San Mateo did not specify why its hedge fund portfolio exceeded projected costs, pension documents indicate higher or lower fees may be attributable to changes to the target asset allocation, unanticipated additions of investment managers and performance.

Recent activity within the hedge portfolio checks off a few of those boxes. San Mateo County netted a 7.2 percent return from its hedge fund holdings in the year ended June 30, beating its performance benchmark by almost 3 percentage points, according to county documents.

San Mateo County also added another hedge fund manager, investing $35 million to Standard Life Investments, in October 2015.

The Standard Life investment contributed to the portfolio’s market value increasing by $44.2 million year-over-year, according to pension documents. The retirement system valued its portfolio at $183.8 million as of June 30.

San Mateo County officials did not respond to requests for comment.

Action Item: For more information about San Mateo County, visit www.samcera.org