San Francisco Eyes Hedge Fund Allocation

The $20 billion San Francisco Employees’ Retirement System is mulling its first allocation to hedge funds as one of its larger neighbours has pulled out of the sector entirely.

The pension’s investment staff, led by CIO William Coaker, have recommended a 10% allocation to the board, but 5% would also be a positive move, according to Bloomberg.

“Transparency is improving in the hedge-fund industry as a whole.” —William Coaker, CIO, SFERSIn a memo to the board, Coaker said most objections to investing in hedge funds “are at best an incomplete picture.”

“Hedge funds have less than half the volatility of the equity market,” he wrote. “Transparency is improving in the hedge-fund industry as a whole.”

Coaker added that the allocation would “help smooth our returns.” The pension’s funding level “falls dramatically in bear markets, and it rises only slowly in bull markets,” he said.

The pension’s board is to consider the proposal at a meeting on Wednesday, February 11.

Although the decision to invest in hedge funds for the first time was in contrast to recent high-profile exits from the sector—including the California Public Employees’ Retirement System and PFZW in the Netherlands—broader industry data indicates institutional appetite remains high.

Total hedge fund sector assets passed $3 trillion in 2014, with $355 billion added through new investments and returns.

For a review of the recent tumultuous history between pensions and hedge funds, sign up for this month’s CIO magazine.

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