San Francisco city workers mobilized last week and delayed the city’s retirement board yet again from handing over their pension fund to corporate speculators, keeping alive the hope of stopping the transfer once and for all.
The city workers packed the San Francisco Public Employees Retirement System’ Board of Trustees meeting room to standing room only Dec. 4, as they have for the last several monthly meetings, with dozens signing up to speak at its public comment period. The only topic of this special meeting: How to invest the pension’s funds and whether to invest any of it into high-risk hedge funds — aggressively managed portfolios of unregulated investments — in an attempt to get high returns.
Since the time that the SFERS staff first proposed to the Trustees last summer that they add hedge funds to the pension portfolio, SEIU 1021 retirees and actives have intervened in opposition, claiming that as the contributors to the fund and its intended beneficiaries, their voice on these matters should be heard and heeded.
The case against hedge funds
At this latest meeting members arrived with nearly 2,000 signatures on a petition demanding no investment of the pension funds in hedge funds. And during the public comment session they hammered away at their criticisms of hedge fund investments.
Hedge funds are too high risk for a pension fund that so many are depending on for their retirement, SEIU 1021 members claimed. They cited George Soros, the billionaire investor, philanthropist and hedge fund pioneer, who said that hedge funds were too risky an investment for pension funds.
They derided hedge funds’ the low rate of return, citing billionaire Warren Buffet saying simple investment in the Standard & Poor’s 500 Index would uniformly out perform hedge funds many times over. They cited the fact that CalPERS, the single largest pension fund in the country, was divesting from hedge funds because of excessive management fees and disappointing returns. Claire Zvanski, the Vice President of SEIU 1021’s West Bay Retirees chapter, said that Operating Engineers Local 3’s pension fund was “in the toilet” and would be for the next 20 years due to its investments in hedge funds and the losses incurred there.
They pointed out the lack of regulation and transparency in hedge funds. Even the Trustees could never find out what the hedge funds they were investing in were doing with that money. They pointed out that some hedge funds have invested in efforts to eliminate defined benefit pensions like SFERS. That would be paying to cut our own throat, they said.
They noted what Lois Scott, past President of IFPTE Local 21, called “obscene” management fees— 2% of the investment and 20% of all returns.
They demanded that staff come back with a more in-depth analysis of all proposed “asset reallocation” plans and their mixes, and that some of those mixes should include no investment in hedge funds.
They also criticized the Board’s process. Last July SEIU 1021 President Roxanne Sanchez sent a letter to Board president Victor Makras with some 30 questions on why the Board was moving so quickly on the hedge fund proposal and if they had considered critical questions on why move into hedge funds and make all the other changes to the fund’s investments. The letter also asked that the Board hire an independent consultant to “prepare a robust contrarian critique” of the hedge fund proposal.
Makras did not send a response until Dec. 1, giving the union only one day to review and analyze the 15 page document with 80 pages of backup materials before the SFERS Board of Trustees meeting where a decision was scheduled to be made. Worse, it didn’t even respond to most of Sanchez’s questions.
“The document just continues the booster-based support without considering the critique of hedge fund investments or their downside,” said Marguerite Young from SEIU’s Capital Stewardship Program. “There was no description of other pension funds that considered hedge funds and what they decided and why.”
Cynthia Landry of SEIU 1021’s Retirement Security Committee told the Trustees, “You have a judiciary responsibility to sustain your retirees in their golden years. We have lots of concerns with the changing asset allocations.”
Trustees stop, members go
Towards the end of the public comment period, retired SEIU 1021 paramedic Jon Meade’s name was called. No more piling on about problems hedge funds was needed by then, so Meade turned his back to the Trustees and addressed the workers who still filled the hearing room. He thanked them for being there and at all the previous meetings.
“If we hadn’t made the effort, hedge funds would have already gotten our money,” Meade said.
In the end, with the widespread union and community attention to the issue, and the obvious media interest in their actions, the Trustees voted unanimously to defer the asset allocation decision until its February meeting to give staff an opportunity to give them more detailed information about each of its investment proposals so they could make a responsible decision.
To sign the petition to the SFERS Board of Trustees demanding no investment in hedge funds, click here.
The February meeting of the SFERS Board will be held Feb. 11 at 1 pm at 1145 Market Street 6th floor in San Francisco.