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Pension Funds

San Francisco approves raising hedge funds to 15%, eliminates core bonds

The San Francisco City & County Employees' Retirement System board approved a new asset allocation that could increase the target allocation of the plan's hedge fund allocation to 15% from 5%, while slashing equity allocations and eliminating core bond holdings, confirmed board secretary Norm Nickens in a phone interview.

While the asset allocation was approved by the board 4-0 on Wednesday, Mr. Nickens said the board still has to vote again at its scheduled meeting on Oct. 11 to set exact asset allocation ranges. Three board members were absent.

The asset allocation plan also makes other major changes, including eliminating the 11.8% target allocation to core bonds, while building a private debt portfolio, that would take up 10.5% of the retirement plan's portfolio. Currently, the $22.3 billion pension fund has 1.6% devoted to private debt. It does not have a current target allocation to private debt.

Global public equity would also take a major hit, being reduced to 31% from 40% under the plan. Its currently has a 48.1% actual allocation.

Treasuries' target allocation will be increased to 6% from 2%. It has a current 6% allocation. Private equity, currently with an 18% target, would move to a 19.3% target. The asset class currently has a 14.5% actual allocation.

Real assets, which includes real estate, would see its target allocation reduced to 15.2% from 17%. The current allocation to real estate 13.8%.

Liquid credit would also see a decrease to 3% from the current target of 6.2%. Its current allocation is 6.8%.

The asset allocation plan could go into effect immediately after the October vote, but Mr. Nickens said it could take several years to meet the new targets.

If the 15% hedge fund allocation stands at the October meeting, it would be a victory for Chief Investment Officer William Coaker Jr., who has been pushing for the large hedge fund allocation since he became CIO in 2014. Mr. Coaker has said that the hedge fund portfolio will help the system reduce major losses during an equity downturn.