San Francisco City & County Employees' Retirement System Chief Investment Officer William Coaker Jr. will have to wait at least 90 days before the pension fund's board passes judgment on his plan to invest 15% of the pension fund's $19 billion in assets in hedge funds.
Mr. Coaker was pushing for board approval at the pension fund's monthly meeting Wednesday of his portfolio restructuring plan, which reduces equity and fixed-income exposure, and creates a new $3 billion allocation to hedge funds. The plan also includes a new 12% allocation to alternative equity strategies. But board members by a 6-1 vote tabled the matter for 90 days for further study.
Mr. Coaker told board members that the hedge fund allocation would reduce equity risk and major financial losses for the pension fund in a severe market downturn, preventing a repeat of the scenario that occurred for the pension fund during the financial crisis.
But board members told Mr. Coaker that they needed more information and directed him to prepare a report to be presented to the board in 90 days with detailed information on performance of hedge funds at other public pension funds. They also asked for specific information on hedge funds in which he planned to invest and their performance as well as their fees.
Board chairman Victor Makras said he expected the board would be able to vote on the plan at that point, but Mr. Coaker said he was unclear to as how much of the information could be gathered in the short time period. He said he would give the board as much information as possible.
The board also put on hold a plan to issue an RFP for a hedge fund consultant.
Mr. Coaker still might have the votes to pass his plan. Only two of the seven board members said they were absolutely opposed to hedge funds. One of these board members, Herb Meiberger, cast the sole dissenting vote against tabling the new asset allocation plan.
Mr. Meiberger told the board he cast that vote because he instead wanted to vote the entire hedge fund plan down. He said hedge fund fees alone could cost the San Francisco pension fund $100 million a year. He again cited a response from Warren Buffet in a May 6 letter that said “I would not go with hedge funds — would prefer index funds.”
But board member Joseph Driscoll countered, “how much would you pay not to lose $5 million,” a reference to a potential loss for the pension fund from a drawdown.
Mr. Coaker also invoked Mr. Buffett's name, noting the value investor had recently warned that more public pension funds could be in financial trouble because they were underfunded, following in the footsteps of Detroit and other plans.
Mr. Coaker said he was trying to avoid those problems for the San Francisco pension fund by pushing for the hedge fund plan.