Board members at San Francisco City & County Employees’ Retirement System delayed a vote Wednesday on a plan to implement a hedge fund program for the second time in three months as they debated whether the investment is too risky.
But board members at the $20.6 billion pension fund insisted that they would make a final decision in 90 days on Chief Investment Officer William Coaker Jr.’s plan to create a 15% allocation to hedge funds. Mr. Coaker’s plan also reduces fixed income to 17% from 25%, global equities to 28% from 47% and adds a new alternative equity allocation of 12%.
Board members at a June 11 meeting had delayed voting on the program that Mr. Coaker first proposed in early 2014, and asked him and the pension fund’s general consultant, Angeles Investment Advisors, to provide a detailed report documenting the merits of a hedge fund program.
Mr. Coaker gave board members the report Wednesday, with more than 100 pages of documents, supporting his view that hedge funds would produce investment results on an annualized basis better than global equity and low-yielding core fixed-income securities.
But board members demanded more information Wednesday, including the names in 90 days of the exact hedge funds in which Mr. Coaker plans to invest. Mr. Coaker said he plans to hire an internal hedge fund portfolio manager to run the program and help select funds in concert with a consultant.
SFERS Executive Director Jay Huish told the board the job was offered to a candidate, but he refused because the pension fund has not yet agreed to implement the program.
Mr. Coaker repeatedly came to the defense of his proposal Wednesday during a more than three-hour discussion, insisting that hedge fund investments would help avert a financial disaster for the pension fund if there was another global financial meltdown.
He insisted a properly run program could pick the best funds. Answering board members’ concerns, Mr. Coaker said the program would insist that hedge managers have a high level of transparency.
He said fraud also could clearly be avoided with proper due diligence. Citing Bernard Madoff, the former hedge fund manager who was convicted of running a massive Ponzi scheme, Mr. Coaker said any investor who had done proper checks would have realized that something was wrong with his consistently high returns.
Only one board member, Herb Meiberger, was absolutely opposed to the hedge fund program; the other six members went back and forth in discussions on whether to support the program.
Board member Leona Bridges suggested a compromise of starting with an initial 5% allocation, which elicited some support from other board members.