Investments
The Investment Division serves as a resource to the Retirement Board in the development of investment policies and practices. In accordance with the annual investment plan, the investment team brings before the Board, new investment opportunities with the objectives of enhancing the structure and diversity of the investment portfolio and sustaining long-term performance.
Additionally, the Investment Division’s professional staff analyzes, develops, and recommends asset allocation mixes, manages investment portfolios, and monitors the activities and performance of external investment managers.
Investment Goals:
- To provide SFERS participants with retirement benefits as required by the City and County of San Francisco Charter and applicable laws.
- To set the asset allocation policy in a manner that encompasses a strategic, long‐term perspective of the capital markets and the nature and structure of SFERS’ liabilities.
- To generate an annualized net‐of‐fee basis return that:
- Meets the assumed actuarial rate of return over a full market cycle, subject to liquidity needs and other risk considerations.
- Exceeds the policy benchmark return based on SFERS’ asset allocation policy and respective asset class component benchmark returns over rolling five‐year periods, and thereby add value at the total fund level.
Investment Beliefs
- The investment plan design should reflect a long-term horizon.
- The power of compound returns and capital preservation is substantial and should be recognized.
- Volatility in the short term can be substantial but diminishes over long periods of time.
- Diversification of assets and investment styles enhances risk‐adjusted returns over the long‐term.
- Superior returns are achieved through asset allocation, asset rebalancing, and manager and security selection.
- Asset allocation is the primary determinant of risk and return. A strategic long‐term asset allocation plan implemented in a consistent and disciplined manner will be the major determinant of the Plan’s investment performance.
- Investment decisions should be made in a total portfolio context.
- Investment decisions should reduce the potential for the permanent impairment of capital.
- Material environmental, social, and governance (ESG) factors can affect the risk and return characteristics of investments.
- Manager selection focused on selecting managers with identifiable investment skill, the ability to recognize and exploit less efficient market segments, and strong operational capabilities will drive stronger returns.
- In many markets, specialist managers tend to outperform generalists over the long term.
Asset Allocation Table
Below is a table detailing SFERS’ asset allocation as of June 30, 2024.
| Asset Class | Market Value ($ thousands) | Weight (%) |
|---|---|---|
| Public Equity | $10,706,838 | 30.3% |
| Private Equity | $10,069,153 | 28.5% |
| GROWTH ASSETS | $20,775,991 | 58.7% |
| Real Assets | $5,187,437 | 14.7% |
| Absolute Return | $3,049,382 | 8.6% |
| DIVERSIFYING ASSETS | $8,236,819 | 23.3% |
| Fixed Income | $2,685,486 | 7.6% |
| Private Credit | $3,100,876 | 8.8% |
| INCOME GENERATING ASSETS | $5,786,362 | 16.4% |
| Cash* | $587,503 | 1.7% |
| TOTAL INVESTMENT PORTFOLIO | $35,386,675 | 100.00% |
* Includes Leverage exposure:
Note: Investment portfolio asset values shown here are net of management fees and expenses and based on valuation data available at the end of the fiscal year. This may differ from the SFERS audited financial statements, which take into account information on Level 2 and Level 3 assets that becomes available during the audit.
Investment Performance
Below is a chart of SFERS’ investment performance vs. benchmarks for periods ending June 30, 2024.
| Asset Class | 1-Year | 3-Years | 5-Years | 10-Years | 20-Years |
|---|---|---|---|---|---|
| Public Equity Benchmark: Public Equity Policy1 | 18.56 18.40 | 1.50 4.70 | 9.94 10.36 | 8.31 8.17 | 7.93 8.02 |
| Private Equity Benchmark: Private Equity Policy2 | 2.56 23.79 | 2.55 9.34 | 13.87 15.34 | 13.93 14.96 | 14.03 14.05 |
| Real Assets Benchmark: Real Estate Policy3 | -3.38 0.06 | 8.86 9.50 | 5.95 5.02 | 9.20 6.02 | 8.15 7.44 |
| Absolute Return Weighted Policy Benchmark4 | 10.76 8.79 | 4.37 7.62 | 4.66 6.91 | N/A N/A | N/A N/A |
| Fixed Income Benchmark: Fixed Income Policy5 | 6.50 5.52 | -1.73 -0.33 | 0.43 1.16 | 1.76 2.09 | 3.91 3.65 |
| Private Credit Benchmark: Private Credit Policy6 | 10.04 12.28 | 8.41 5.41 | 8.62 6.16 | 9.05 6.03 | N/A N/A |
| Total Fund Total Policy Benchmark7 | 7.99 14.60 | 3.01 6.53 | 8.44 9.16 | 8.03 8.06 | 7.98 8.15 |
1. The current Public Equity Policy (starting 10/1/2012) consists of 100% MSCI ACWI IMI (ND).
2. The current Private Equity Policy (starting 1/1/2023) consists of 25% MSCI ACWI Ex-US IMI (ND) and 75% Russell 3000 plus 300 bps.
3. The current Real Assets Policy (starting 1/1/2024) consists of 14.64% NCREIF NFI-ODCE Value Weighted Index, 38.46% Cambridge Associates Real Estate, 33.00% Cambridge Associates Natural Resource Index, 13.90% Cambridge Associates Infrastructure Index.
4. The current Absolute Return Policy (starting 7/1/2023) consists of the 90-day Treasury Bill plus 300 bps.
5. The current Fixed Income Policy (starting 7/1/2022) consists of 45.45% of Liquid Credit Policy and 54.55% of Bloomberg Barclays Intermediate US Treasuries Index. Liquid Credit Policy is 33.34% Bloomberg Barclays US Corporate Bond Index, 33.33% US Corporate High Yield Index and 33.33% J.P. Morgan EMBI Global Diversified Index.
6. The Private Credit Policy consists of 50% Bank of America Merrill Lynch US High Yield BB/B Constrained Index and 50% Credit Suisse Leveraged Loan Index plus 150bps.
7. The current SFERS policy benchmark (starting 10/1/2022) consists of 37% Public Equity Policy, 6% Bloomberg Barclays Intermediate US Treasury, 5% Liquid Credit Policy Benchmark, 7% Private Credit Policy, 12% Real Assets Policy, 23% Private Equity Policy and 10% Absolute Return Policy Index.
Annual Rates of Return Last Five Years
| 2024 | 2023 | 2022 | 2021 | 2020 |
|---|---|---|---|---|
| 7.99% | 4.25% | -2.78% | 33.70% | 2.41% |
