INVESTOR PROFILE

San Francisco’s mission to expand and upgrade

INVESTOR_profile_sanfranciscoThe new executive director of the San Francisco Employees’ Retirement System (SFERS), Gary A. Amelio, has come equipped with experience and ideas for the defined benefit pension plan that is managed by SFERS. With an aggressive investment strategy firmly in place, he spoke with Amanda White about the long-term vision, now being implemented.

AMELIO_Gary_web_nlGary Amelio was appointed executive director at the San Francisco Employees Retirement System just three short months ago, yet already has several long-term projects in his sights. The fund, which had assets in excess of $16 billion before the stockmarket decline and recession, saw its value drop to $11 billion, and rebound steadily to its present value of about $13.5 billion (as of December 31, 2009). Amelio acknowledges the fund has always had a reasonably aggressive investment strategy, with a current actual allocation of public equities sitting at almost half the assets, private equities comprising another 12 per cent, and real estate a little less than 10 per cent.

“The SFERS retirement board commissioners are knowledgeable about investments, incredibly well informed and have maintained an educated, aggressive strategy for a long period of time.”

“It helps that most commissioners hold a long and continuous tenure of service on the board. The board plans to maintain this approach, continuing its oversight, and approving adjustments in strategy based upon global and market circumstances. There is no plan, however, to significantly increase risk with the hope of gaining investment performance results,” Amelio says.

The fund is, however, modifying the structure and composition of its internal investment team.

SFERS is on a mission to “expand and upgrade”  its investment staff; with these efforts following the completion of a board-mandated consultant’s review completed a few years ago. The investment staff manages a portion of its public portfolio, both equity and fixed, in house. While no decision is imminent to modify the current ratio, Amelio says the fund is evaluating other asset classes that could be managed in-house.

“We are aggressively competing to create and maintain an environment, in both remuneration and practices, that will both retain and attract the highest calibre investment staff,” Amelio says. “The board determined, and I agree, that we needed to bolster the strength and breadth of the investment team, although I should stress the term ‘bolster’. We are very fortunate to have begun the process with a very capable leader and team.”

As part of this complete reorganisation of the investment team, new heads of public and private markets were appointed. These new positions are now being supported by talented teams of investment officers who focus on specified sub-classes of investments.

Donald Holcher now heads the private markets group, responsible for real estate and alternative investments, while Robert Shaw heads the public markets group, which is responsible for equities and fixed income. Both were internal promotions, and will report to the deputy director for investments (chief investment officer in industry terms), David Kushner.

“The internal team’s function includes monitoring current manager performance, asset allocation guidelines and oversight of the current holdings of managers. In addition the staff co-ordinates the independent investment consultants and provides investment information to the board. They are also constantly on the lookout for new opportunities for appropriate fund investments. The fund does not invest in hedge funds and there is no current plan to modify that position.”

Amelio believes the reorganisation of the investment team, which numbers about a dozen with another three or so additional hires expected, gives new energy to the internal workings of the fund, which he describes as already having a reputation “worth crossing the country for.”

He recently moved to San Francisco from Washington, DC, where he spent four years as executive director of the Federal Retirement Thrift Investment Board, which administers the Thrift Savings Plan, the largest defined contribution plan in the world.

Amelio also spent time as president of Ullico, an investment manager for Taft Hartley plans, and consulted for a year at Sungard which included time in the UK speaking with that government’s officials about their creation of a national savings plan.

“I wouldn’t have moved across the country to serve SFERS, but for the fact that the fund is solidly funded and maintains a pristine reputation, nationally. It truly has a top-shelf profile,” he says.

But Amelio has also walked into a number of projects, with the fund undergoing a number of quite fundamental reviews, including a look at risk management.

“We are putting together a comprehensive formal risk management plan and policy, and giving it high priority,” he says. “We regularly review asset allocation models and manager holdings and performance, examining a variety of matters.”

While SFERS is in an enviable position, with a solid actuarial funding level of 97 per cent, Amelio is cognisant of his peer environment, acknowledging that US pension plans are going through a very trying time.

“Government budget issues, less than required contribution levels, and major decline in the markets have focused an unfavourable glare on pension plans,”  he says. “I believe fiduciaries should always make investment decisions realistically and prudently, and shouldn’t overreact by assuming too much risk, with the hopes of investing their way out of a situation.”

Amelio plans to spend the best part of his first year evaluating the plan without making significant changes but expects there will be some long-term changes.

“San Francisco’s government is in a transitional period, having recently announced a large number of layoffs. There will be an uncharacteristically large number of retirements requested in the coming months, and our fund is ramping up the member services process to address not only the volume but [also] the heightened concerns of our members,” he says.

Other longer-term projects include improvements to participant services, a major upgrade of information technology equipment and staff facilities, ensuring adequate staffing levels, building a management succession plan with adequate staffing, and revising the funds’ communication “look” so there is consistency and a uniform corporate identity.

In addition, there are a number of proposed changes to the San Francisco government charter, which will affect the way the pension plan operates, if approved by the voters this June.

Among the proposed changes are: the final/highest one-year compensation determination level for computing retirement benefits would change to two-year averaging; safety employee contribution levels would increase from 7.5 to 9 per cent; and, amounts not legally required to be paid into the pension for “normal costs”  in an overfunded status would be required to be paid into the Retiree Health trust.

Recent investment asset allocation and holding numbers of the SFERS Fund are:

SFERS ASSET ALLOCATION 2010 ACTUAL ASSET HOLDING by %

Asset Class Policy Range % FEB 2010 DEC 2009
US equity 22-30 26.34 26.34
International equity 20-26 21.5 22.2
Fixed income 20-35 30.4 29.2
Alternative assets 10-18 12.5 12.1
Real estate 9-15 8.2 9.1
Cash 0- 1 1 1

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