San Francisco Pension System Commits More than $900 Million to Private Markets

The plan has committed more than $3 billion overall in 2018 to private markets as CIO William Coaker Jr. builds up the alternatives portfolio.

The $25.3 billion San Francisco Employees’ Retirement System (SFERS) continues to make new commitments to private markets, disclosing this month that $939 million was committed to private equity, energy, natural resources, and real estate funds.

The latest commitments include $150 million to one Asian private equity fund of funds and $100 million combined to two Asian real estate firms. All three firms are based in Hong Kong and looking for opportunities in China and other countries in the region.

The new commitments are on top of more than $500 million made to private market investments by the San Francisco system since mid-year and another $800 million committed to hedge funds. Overall in 2018, the system has made commitments of more than $3 billion to the private markets and hedge funds portfolio, shows a review of investment reports by CIO.

SFERS CIO William Coaker Jr. has been restructuring the system’s portfolio, reducing equities while increasing private market and hedge fund portfolios.

Equities have dropped to 35.9% of the overall portfolio, down from 48.3% in October 2016, when the board approved asset allocation changes proposed by Coaker. Hedge funds, meanwhile, went up from 1.2% to 13.1% of the portfolio, private equity increased from 13.4% to 18.6%, and real assets, which includes real estate, went from 12% to 15.4%

The new commitments, which numbered 17 in total, were all made in closed session using delegated authority granted by the system’s board to Coaker and his investment staff.

The biggest commitment approved at the plan’s meeting on October 10 was $150 million to San Francisco Asia Investors. The separate account is managed by private equity fund of funds Asia Alternatives, which invests in various private equity firms across Asia through various investment funds, separate accounts, and co-investment vehicles. SFERS also made commitments of $100 million to the San Francisco Asia Investors in June 2017, $200 million in August 2015 and $150 million in June 2014.

At its May 23 meeting, SFERS made another commitment to an Asian fund, approving $50 million to Arch Capital Asian Partners IV, run by Arch Capital Management. The firm states on its website that its funds invest in residential, commercial, mixed use, and retail sectors in the Asian region with a focus on Greater China, Singapore, India, Thailand, Macau, and Vietnam.

Another $50 million was invested in Gateway Real Estate Fund IV, which is managed by Gaw Capital in Hong Kong. Gaw targets investment opportunities in China and other Asian nations.

The next biggest investment was €100 million ($113.8 million) to European Property Investors Special Opportunities 5 SCSp fund. The real estate fund is managed by Tristan Capital Partners in London. The commitment was made at the board’s June 13 meeting.

That was followed in size by a $100 million commitment to Ares Energy Opportunities Fund. The fund is considered a natural resources fund within SFERS’s real assets portfolio.

The SFERS board also approved two co-investments, $25 million in Ares SCM co-invest and $15 million in another Ares-associated co-invest vehicle, AF V APR co-invest. All the Ares commitments were approved  at the board’s August 8 meeting.

At that meeting, the board also approved a commitment of $50 million to Hellman & Friedman Capital Partners IX. The commitment to the mega-buyout fund will be part of the pension system’s private equity portfolio. It is the eighth Hellman & Friedman fund in which the San Francisco system has invested.

The board also committed $30 million (124 million reais) to a Brazilian fund, Jive Distressed Fund II, at the July 10 meeting. The fund is managed by Jive Asset Management.

Other commitments approved by the San Francisco board in closed session include a September 12 commitment of $50 million to New Energy Capital Infrastructure Credit Fund II, managed by New Energy Capital, and a July 10 commitment of €75 million ($85.4 million)  to Niam Nordic VII KB. The fund is managed by Niam, a real estate firm that invests in the Nordic region.

The commitments also include two more large buy-out funds. At the September 12 meeting, the board approved a commitment of $50 million in Vista Equity Partners VII, and at its August 8 meeting, it approved a $50 million in Thoma Bravo XII, a buyout fund managed by private equity firm Thoma Bravo. Additionally, the board approved a $25 million investment in Carmel Partners Investment Fund VII, a real estate fund.

SFERS also approved one investment in a venture capital fund in the latest round of fund commitments. It allocated $50 million to Versant Venture Capital VII. The commitment took place at the August 8 board meeting.

The San Francisco system also invested in additional co-investment vehicles at its meeting on September 12: $15 million in Pelican Co-investors 2018A, which is managed by Pelican Energy Partners, and up to $30 million in San Francisco SW HC on September 12. The latter is SFERS’s first co-investment alongside K1 Investment Management, a private equity firm based in Los Angeles.

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