SF pension inches closer to its private market allocation

The San Francisco retirement system has been making a sizeable effort to meet its target by quadrupling its commitment pacing to private markets between 2013 and 2015.

The San Francisco Employees’ Retirement System is closer to reaching its target private market allocation, according to a chief investment officer report presented at its 8 February board meeting.

SFERS CIO William Coaker wrote in the report that, as of December, the $21 billion pension fund had allocated 27 percent to private markets, which include private equity and real assets composed of real estate and natural resources.

This is below the 35 percent target allocation to private markets – having been was raised from 28 percent in February 2015 – but the local pension fund is now “in a much better position” to reach that target over time now, Coaker said.

“Historically, SFERS has been under-committing to the asset class despite its success,” a source familiar with the matter told Private Equity International. “But it is getting there gradually; it’s a slow-moving asset class and you can’t get there overnight.”

SFERS has indeed had a good run with private equity since it started investing in the asset class in 1990, according to PEI data. It has consistently ranked among the 10 best-performing US public pension funds in private equity, according to the American Investment Council’s annual pension analysis. For example, in the latest report released in 2016, SFERS ranked second, and in 2015 it took sixth place.

The pension’s 2013 annual report shows that for the fiscal year ended 30 June 2013, SFERS committed $585 million to private markets, including $325 million to private equity and $260 million to real assets. At that time, SFERS had a combined allocation of 21.4 percent for private equity and real estate, below the previous 28 percent target.

“Even with a target, it was under-committing as it was still working its way out of the global financial crisis at that time,” the source said. “But now it seems to be that the mindset is ‘if there’s a good opportunity [to invest], let’s not be shy'.”

During fiscal year 2015, when the latest annual report came out, SFERS committed a whopping $2.44 billion to private markets, including $1.25 billion to private equity and $1.19 billion to real assets – more than quadrupling the annual commitment pace in just two years.

So far in 2017, SFERS has made one commitment in its private equity portfolio with a $24 million cheque to ABRY Senior Equity V, the February CIO report showed.

The source said SFERS plans to commit around $1 billion for the 2016 calendar year.

SFERS declined to comment.