Searches and Hires

San Francisco allocates $250 million to 3 managers, proposes hedge fund ramp-up

Updated with clarification.

San Francisco City & County Employees' Retirement System invested $50 million in a TPG hedge fund, committed $200 million and reported investment staff is proposing a quick ramp-up of its hedge fund program, looking to invest a further $2.5 billion in the next year, according to agenda materials for the board meeting Wednesday.

The latest hedge fund investment was approved by the board in closed session at its Sept. 13 meeting. Chief Investment Officer William Coaker Jr. disclosed that the board of the $23.3 billion pension fund approved the investment in TPG Public Equity Partners-A, a long/short fund, shows a memo in the agenda materials.

The investment is part of a customized hedge fund of funds managed by Blackstone Alternative Asset Management and is the 19th investment. About $500 million of the approved hedge fund investments have been with BAAM, with the remaining $425 million in direct investments. Only about $625 million has been invested.

An implementation plan for the additional investments will not be voted on by the board Wednesday but ultimately will need its final approval as part of a new asset allocation plan that would also cut equity exposure and eliminate the system's core bond portfolio. The approval could come before the end of the year, said Norm Nickens, board secretary, but he said no date has been set for the vote.

The board in September already agreed to increase the hedge fund allocation to 15% from 5% of the portfolio at the urging of Mr. Coaker. The hedge fund program only began in October 2016.

Mr. Coaker has argued that the hedge fund portfolio will lessen losses during an equity market downturn, battling some board members for almost four years who had argued that investing in hedge funds was too risky.

As part of the quick one-year ramp-up of the hedge fund program, the implementation plan shows the pension fund expects to have $3.15 billion invested by the end of October 2018, with 65% invested in the Blackstone hedge fund of funds. After that point, the plan calls for the $23.4 billion pension fund to reduce its exposure to the managers chosen by Blackstone and contract directly with those same managers. The hedge fund allocation is expected to reach $3.5 billion within two years.

Since the hedge fund program was implemented in October 2016, through Aug. 31, it had returns of 7.7%, above the 6.08% return from its benchmark, the HFRI Fund of Funds Composite index, but below the 16.4% generated by the MSCI All County All World index during that same time period.

Mr. Coaker's report also shows that the board committed up to $100 million each to Blackstone Real Estate Partners Asia II, a real estate fund managed by Blackstone Group, in closed session on May 17, and Institutional Venture Partners XVI, a venture fund, in closed session on Aug. 9.