Article: Inside the SFERS Board Use of Factors, Risk and Performance

January 9, 2022

What do plan sponsors present to their boards? And how do they tell the story of trends and analysis for the future of pension plans?

Factor analysis has been an important part of plan sponsors’ process for evaluating managers and validating investment strategies. The more advanced plan sponsors use these insights to tell the story to their board members, explaining investment risks, performance, and asset management objectives.

For a team of 20 people overseeing $36 billion, public pension plan San Francisco Employees’ Retirement System (SFERS) has used Investment Metrics Style Analytics solutions for more than a decade to analyze factor exposures, risk and portfolio performance.

Anna Langs, Managing Director of SFERS, shared real-world advice and insights during our recent webinar on SFERS’s use of factor analysis to deliver greater insights to its board.

Keeping track of a global, active portfolio

Located near Silicon Valley, SFERS has taken advantage of long-term private equity opportunities since the 1980s. The organization needs to adhere to a strict liquidity management framework to analyze cash flow, and pay pension obligations and capital costs while enjoying the returns from Venture Capital investments. About seven years ago, SFERS also began shifting away from indexing and passive core allocation and towards a more actively managed portfolio.

SFERS has been working with about two dozen active managers to provide the diversification needed to construct a global portfolio covering numerous quantitative, fundamental and new strategies. Over the last five years, it significantly increased its risk by both sector and country tilts, allocating more to niche managers taking on a more concentrated and leveraged portfolio.

Every month, SFERS collects all position and accounting data from all its managers to gain transparency for managing and aggregating risks across the total fund level. Its annual risk and asset management review with the board entails analyzing the total book for every manager with multiple investment metrics. This includes reporting on total risk exposure, fund and portfolio risk, asset allocation, and sub-portfolios for each asset class.

Telling a complete and compelling story

SFERS uses Investment Metrics Style Analytics solutions to see how much of its overall performance was attributed to specific tilts, managers, sectors and strategies. Using Style Analytics to perform the analysis, SFERS demonstrates to the board that its strategy is working by showing strong performance coupled with risk reduction that is attributed to its recently chosen managers.

SFERS looks at the performance of growth tilt as part of its investment committee meetings. Potential future growth selections are based on stretch valuations and forward projections versus what Style Analytics provides compared to manager assumptions. Style Analytics provides an intuitive growth-tilt performance and risk view of both quantitative and fundamental managers who play a key role in SFERS’ portfolio.

Anna Langs says that Investment Metrics helps us provide a simple and visually appealing presentation to the board – a compelling way to present the decisions we’ve made to actively change the portfolio with increasing active risk and manager selection. Investment Metrics also helps SFERS “peel the onion” even deeper to analyze and present risk and performance at the investment commitment and risk meeting levels.

Learn more

Further explore SFERS’ use of Investment Metrics factor analysis by watching the recording of our recent live discussion.

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