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 City and County Charter and applicable laws. This will be accomplished through a carefully planned and executed long-term investment program.
- On an annualized net-of-fee basis, over a full market cycle, the total portfolio will be expected to: Exceed the assumed actuarial rate of return (currently 7.2%). Exceed the benchmark return based on SFERS’ asset allocation policy and respective asset class component benchmark returns over rolling five-year periods.
- To undertake all transactions for the sole benefit of SFERS members and beneficiaries, and for the exclusive purpose of providing benefits to them, minimizing contributions to the Plan, and defraying reasonable administrative expenses associated with the Plan.
- To set asset allocation policy in a manner that encompasses a strategic, long-term perspective of the capital markets, the nature, and structure of SFERS’ liabilities, as well as the impact on employee and employer contributions. SFERS recognizes that 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.
- To make decisions and follow investment policies that comply with “prudent expert” standards.
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.
- Reducing the potential for investment loss that leads to increased employer and employee contributions is a priority.
- Asset allocation is the primary determinant of risk and return.
- Investment decisions should be made in a total portfolio context.
- Superior returns are achieved through asset allocation, asset rebalancing, and manager and security selection.
- Material environmental, social, and governance (ESG) factors can affect the risk and return characteristics of investments.
- To achieve its mission, SFERS seeks to partner with exceptional managers with identifiable investment skills and the ability to recognize and exploit less efficient market segments.
- Specialist managers tend to outperform generalists.
Asset Allocation Table
Below is a table detailing SFERS’ asset allocation as of June 30, 2022.
| Asset Class | Market Value | Weight (%) | Target | Target Range | Interim Policy |
|---|---|---|---|---|---|
| Liquid Credit | $825,715,805 | 2.49% | 5.00% | 0.00-10.00% | 5.00% |
| Treasuries-Notional | $1,537,817,296 | 4.64% | 8.00% | 3.00-12.00% | 6.00% |
| Private Credit | $2,175,104,536 | 6.56% | 10.00% | 3.00-15.00% | 5.00% |
| Private Equity | $10,811,985,390 | 32.60% | 23.00% | 15.00- 30.00% | 23.00% |
| Absolute Return | $3,510,514,048 | 10.58% | 10.00% | 5.00-15.00% | 12.00% |
| Real Assets | $5,009,495,821 | 15.10% | 10.00% | 8.00-15.00% | 12.00% |
| Public Equity-Notional | $9,923,302,495 | 29.92% | 37.00% | 25.00-50.00% | 37.00% |
| Cash | -$625,698,657 | -1.89% | -3.00% | -5.00-0.00% | — |
| Total | $33,168,236,734 | 100.00% | 100.00% | 100.00% |
Investment Performance
Below is a chart of SFERS’ investment performance as of June 30, 2022.
| Asset Class | Market Value | 1-Year | 3-Years | 5-Years | 10-Years | 20-Years |
|---|---|---|---|---|---|---|
| Public Equity Benchmark: Public Equity Policy1 | $9,885,710,995 | -24.86% -16.52% | 5.23% 5.98% | 6.70% 6.70% | 9.09% 8.71% | 6.95% 7.41% |
| Private Equity Benchmark: Private Equity Policy2 | $10,811,985,390 | 13.90% -12.66% | 26.46% 10.88% | 22.95% 12.05% | 18.93% 16.10% | 14.87% 13.33% |
| Real Assets Benchmark: Real Estate Policy3 | $5,009,495,821 | 28.92% 30.90% | 10.09% 8.25% | 10.91% 7.37% | 11.94% 7.68% | 8.82% 8.63 |
| Absolute Return Weighted Policy Benchmark4 | $3,510,514,048 | -1.48% 5.20% | 2.87% 5.64% | 3.27% 6.14% | N/A N/A | N/A N/A |
| Private Credit Benchmark: Private Credit Policy5 | $2,175,104,536 | 10.07% -6.11% | 9.31% 2.58% | 10.53% 4.08% | 11.09% 5.70% | N/A N/A |
| Fixed Income Benchmark: Fixed Income Policy6 | $1,700,510,650 | -11.23% -8.15% | -1.56% -0.58% | 0.47% 1.02% | 2.29% 1.87% | 4.44% 3.85% |
| Total Fund Weighted Policy Benchmark7 | $33,168,236,734 | -2.90% -6.57% | 9.95% 6.22% | 9.83% 6.89% | 9.90% 8.40% | 8.28% 7.76% |
1. The current Public Equity Policy (starting 10/1/2012) consists of 100% MSCI ACWI IMI (ND)
2. The current Private Equity Policy (starting 1/1/2018) consists of 25% MSCI ACWI Ex-US (ND) and 75% Russell 3000 plus 300 bps
3. The current Real Assets Policy (starting 1/1/2018) consists of 50% NCREIF ODCE and 50% Cambridge Associates NR Quarter Lag
4. The Absolute Return Policy consists of the 90-day Treasury Bill plus 500 bps
5. 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
6. The current Fixed Income Policy (starting 7/1/2019) consists of 45% Bloomberg Barclays US Aggregate and 55% Bloomberg Barclays Intermediate Treasury
7. The current SFERS policy benchmark (starting 10/1/2019) consists of 35% Public Equity Policy, 6% Bloomberg Barclays Intermediate US Treasury, 5% Bloomberg Barclays Capital US Aggregate, 4% Private Credit Policy, 17% Real Assets Policy, 18% Private Equity Policy and 15% 90-day Treasury Bill plus 500 bps
Annual Rates of Return Last Five Years
| 2022 | 2021 | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| -2.78% | 33.70% | 2.41% | 8.19% | 11.14% |
