San Francisco adjusts for denominator effect

The city pension system has halved its earlier proposed 2009 target allocation to private equity due to overweighting.

The San Francisco Employees’ Retirement System has rejected a proposed target of $525 million in private equity investment for 2009 in favor of a more modest target between $225 million and $325 million.

The revised investment pace, approved by the board on 9 December, was based on staff and consultant recommendations and driven by the denominator effect, executive director Clare Murphy told PEO.

The pension aims to have a private allocation of 10 percent to 18 percent with a long term target of 14 percent. As of 30 June, the pension had a real allocation of 10.5 percent, a figure which is likely far higher at present based on the performance of the equity markets over the last six months.

San Francisco Employees’ Retirement System has $12.1 billion under management as of 30 November. At the end of the 2006-2007 fiscal year, the pension managed $16.9 billion in assets.

A large number of US pensions have made adjustments resulting from the denominator effect lately. The Florida Retirement System this month increased the upper limit of its private equity allocation from 5 percent to 7 percent because the real allocation was nearing the 5 percent ceiling. The Pennsylvania State Employees’ Retirement System delayed follow-on commitments to four private equity funds this month and The Oregon Public Employees Retirement Fund intends to forgo new relationships with private equity firms in 2009.