San Francisco City & County Employees' Retirement System, amid a contentious board meeting, again put off a vote Wednesday on whether to allocate 15% of the pension fund's $20.1 billion to hedge funds.
William Coaker Jr., chief investment officer, warned pension fund board members they were risking the financial health of the retirement system if they did not approve his proposal to create an allocation to hedge funds. Despite the warning, divided board members, for the third time in four months, decided not to vote on the plan. Instead, they argued among themselves and with Mr. Coaker about the merits of the hedge fund proposal.
Board members couldn't even agree on when they should vote on the issue. Board member Brian Stansbury asked fellow board members not to vote on the issue for another 90 days, but board President Victor Makras said he will continue to list the hedge fund plan for vote at the board's monthly meetings.
The board already had delayed the vote for three months at its June meeting, requesting more information from Mr. Coaker on hedge fund performance in general. Last month, board members said they wanted to delay the matter for another 90 days, but never actually took a vote on the matter.
A seemingly frustrated Mr. Coaker, who first proposed the hedge fund program early in 2014 after becoming CIO, gave board members dozens of pages of new documents arguing the case for hedge funds. He told the board that hedge funds would give the pension fund protection from severe losses if another financial crisis occurred.
Mr. Coaker's plan also would reduce fixed income to 17% from 25%, global equities to 28% from 47% and add an alternative equity allocation of 12%.
Mr. Coaker said he wouldn't have proposed the plan if fixed income were returning 12.5%.
A packed audience of retirees disagreed, urging the board to vote down the proposal.
Despite the audience, Mr. Coaker didn't back off. He said the San Francisco retirement system had lost more than $6 billion of its assets after the global financial crisis in 2008 and it would be difficult for it to withstand another severe shock.
Mr. Coaker portrayed a scenario to board members in which a financial crisis causes major losses to the pension fund, dropping funded status from the current 93% to as low as less than 60%, and public support for continuing the defined benefit plan is eroded.
After the meeting, Mr. Makras said in a brief interview that he expected the board would make a decision on the hedge fund plan at its meeting on Nov. 5.
At Wednesday's meeting, Mr. Coaker also announced the board's three-member deferred compensation committee will meet Oct. 15 to hear a recommendation from the pension fund's consultant, Angeles Investment Advisors, as to what do with its investment in the PIMCO Total Return Fund following William H. Gross' move to Janus Capital Group.
Deferred compensation participants have $82 million invested in the Pacific Investment Management Co. fund. The retirement system's DC plan has $2.7 billion in assets.
Jay Huish, the retirement system's executive director, said in an interview that if the recommendation was to terminate the fund, it would be the first time the plan has ever eliminated a fund from its offering.
