San Francisco Retirement Plan Connects with China

The San Francisco Employees’ Retirement System (SFERS) has expanded its venture capital investments to China through one Shanghai firm while betting a second Shanghai firm can help find it profitable growth opportunities in entertainment and media.

While the San Francisco plan has been a long-time investor in venture capital, the firms chosen for investments have been more local, given San Francisco’s proximity to Silicon Valley.

Chief Investment Officer William Coaker Jr.’s Jan. 9 investment report shows that the board of the $24 billion system meeting in closed session on Nov. 16 approved an up to $40 million commitment to two funds run by LightSpeed China Partners, which specializes in venture capital. The firm is located in Shanghai.

The retirement plan’s board approved another $100 million investment to CMC Fund III in closed session on Dec. 12. The fund, run by Shanghai-based China Media Capital Inc. (CMC), will focus on the media and entertainment sectors in China but also potentially in the United States.

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The firm is run by Chinese media mogul Li Ruigang, who has made strategic partnerships with Hollywood studios and owns much of the broadcast industry in Hong Kong. While the company’s funds invest in promising companies, China Media Capital has also received its own fundraising. Chinese tech giants Alibaba and Tencent along with other investors have provided $1.49 billion in capital.

The San Francisco pension system has previously invested with CMC, but exact details were not immediately available.

The $140 million in commitments by the San Francisco system were part of an overall $236 million in commitments to private markets and private credit that were approved in the last quarter of 2018 by the system’s board meeting in closed sessions. Overall in 2018, the system has made commitments of more than $3 billion to its private markets and its hedge funds portfolio.

In terms of the China venture capital investment, the Jan. 9 report said $27 million went to LightSpeed China Partners IV, an early-stage venture capital fund. Another $9 million went to a second fund, LightSpeed China Partners Select. The fund will invest in growth equity opportunities, looking for mature companies past the initial venture phases. Both investments closed on Dec. 1.

The funds have a combined cap of $560 million, Lightspeed China Partners IV at $360 million and Lightspeed China Partners Select I at $200 million.

The venture capital-oriented CMC, with $1.5 billion in capital across six funds, has been able to attract the attention of the San Francisco system and other institutional investors because of a strong track record in spotting promising technology companies.

Two of the firm’s portfolio companies went public in 2018. E-commerce services app Meituan Dianping raised $4.2 billion for its debt on the Hong Kong exchange and social commerce upstart Pinduoduo drew $1.6 billion in a Nasdaq initial public offering (IPO).

Other private market investments announced in the Jan. 9 report:

An investment of up to $75 million in the MGG SF Unlevered Evergreen Fund, managed by MGG Investment Group of New York City. A $75 million investment in the fund closed on Dec. 31 and will be classified as a senior debt investment within SFERS’s private credit portfolio.
An investment of up to $25 million in Fifth Wall Ventures II, a venture capital fund run by Fifth Wall Ventures in San Francisco.

The SFERS private equity portfolio, which includes venture capital, amounts to $4.8 billion or 20.1% of the plan’s assets, one of the largest concentrations percentwise by a public pension in the United States. Private credit is a smaller $569.7 million, or 2.4% of plan assets.

Coaker has made increasing private equity investments part of an asset allocation restructuring plan. The private equity portfolio amounted to 13.6% of the overall portfolio when the plan was approved in late 2016.

Tags: China, Pension, San Francisco Employees’ Retirement System (SFERS), Venture Capital, William Coaker

The $52 billion Teachers’ Retirement System of the State of Illinois (TRS), and the $21.8 billion Illinois State Universities Retirement System (SURS) returned more than 8% each in 2018, but that was down from more than 12% the previous year, according to reports from the state’s auditor general.

The TRS investment portfolio returned 8.5% net of fees for the fiscal year ended June 30, down from 12.6% in fiscal 2017, as total TRS investment assets increased approximately $2.9 billion during the year. Total net investment income was $4.0 billion, compared to $5.5 billion in fiscal year 2017, while contributions from members, employers, and the state of Illinois were $5.1 billion, up $53 million, or 1%, from 2017. Benefits and refunds paid to members and annuitants were $6.6 billion, an increase of $114 million, or 1.8%, from the previous year.

As of the end of June, the TRS’ funded ratio was 40.7%, compared to 40.2% on June 30, 2017, while the total pension liability was $129.9 billion, and the net pension liability was $77.9 billion.

During fiscal year 2018, contributions from the state of Illinois increased $109 million, while employer contributions from school districts decreased $65 million. The increase in state appropriations was primarily due to a reduction in the investment return assumption adopted in the 2016 actuarial valuation.

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The auditor’s report said that state funding law provides for a 50-year funding plan that includes a 15-year phase-in period, and a goal of a 90% funded ratio by 2045. It also said that during 2018, Illinois Gov. Bruce Rauner and the state’s general assembly made “a number of significant changes in the Illinois Pension Code that will have a significant effect on the ongoing operations of Teachers’ Retirement System.”

This includes a new law that reduces the threshold on year-to-year salary increases for members that trigger extra employer contributions to TRS to 3% from 6%. The extra employer contributions are required only if the pay increase would factor into the calculation of a member’s initial pension.

TRS serves more than 417,000 total members, of which more than 134,000 are active members, and more than 122,000 are retirees and beneficiaries.

Meanwhile, SURS, which serves more than 211,000 members in its defined benefit plan, and over 22,000 members in its self-managed plan, earned an 8.2% return on investment, net of management fees, for fiscal year 2018, down from 12.2% in 2017.

It also reported three-, five-, 10-, 20-, and 30-year annualized returns of 6.8%, 8.1%, 6.7%, 6.4%, and 8.5% respectively. The auditor’s report noted that the 8.5% total rate of return over a 30-year period exceeded the actuarial rate of return assumption of 6.75% in effect for fiscal year 2018.

The SURS total pension liability was $46.8 billion at the end of fiscal 2018, up from just under $44 billion at the end of fiscal 2017, while the net pension liability rose to $27.5 billion at the end of 2018, from $25.5 billion a year earlier. Contributions from the state and employers to SURS were $1.68 billion in 2018, a decrease of $40.1 million, or 2.3%, from fiscal year 2017, while benefit payments were just under $2.5 billion, up $114.1 million, or 4.8%, for fiscal year 2018.

Tags: Illinois State Universities Retirement System, Illinois Teachers’ Retirement System, Pension, Returns