SF to boost investment team, eyes more co-investing

  • AUM: $24.8 bln
  • PE target allocation: 18 pct
  • Contact SFERS at sfersconnect@sfgov.org
  • Why is this important: The system wants to build up its staff as a result of strong performance; eyes expanded co-invests

San Francisco Employees’ Retirement System plans to increase its investment staff by 73 percent in the next six years, citing strong investment results, the system said at its April meeting.

Part of that increase would stem from the system expanding its PE co-investments. Over 10 years, SFERS will be seeking more co-investments and expects their size to increase to a range of $4 billion to $8 billion from under $1 billion currently.

SFERS’s Portfolio Management Group said its strategy in the past five years to reduce exposure to long-only equity and increase investments into private markets has been a winning one. It’s posted in the top 1 percent of returns compared with other pensions for the past one, three and five years, meeting documents show.

In 2019, SFERS liabilities sit at $28 billion and will increase to $40 billion in 2028 and $60 billion in 2038, Chief Investment Officer William J. Coaker and other top-level executives wrote in a letter to the investment committee.

The management group urged the board to lift investment staff to 36 from 26 in the next two years and to 45 in 2025 across all asset classes. The goal: “to manage the large number of complex strategies we are currently invested in; to evaluate additional strategies for potential future investment; and to invest more prominently in co-investments,” according to meeting documents.

San Francisco said it recognized the value that current managers bring to its fund, but it needs additional resources to handle the growing opportunities. The system’s budget for investment staff has grown 70 percent since 2003.

SFERS management recommended that the board update its current career track by creating senior investment analyst, investment officer and portfolio management positions for investment staff.

In private equity, TorreyCove Capital Partners, an investment consultant for San Francisco, recommended $1 billion in commitments for 2019 based on the system’s PE target allocation of 18 percent.

SFERS would incrementally increase its investment by $50 million to $100 million until it reaches $1.4 billion in commitments in 2025.