By the end of last week, the San Francisco Employees Retirement System was expected to issue a $1.8 billion core-plus bond RFP. It could not be determined by press time if it had. The plan has decided to eliminate global fixed income as an asset class because its correlation with core-plus is fairly high and core-plus has outperformed global over the past 10 years. According to Money Management Letter, a CIN sister publicatiton, San Francisco will also extend the boundaries of traditional core plus to allow managers to put more money into global investments and to take tactical positions. "We just give them a little bit of an expanded tool set," said David Kushner, deputy director of investments.
The $14.7 billion plan has a $1 billion core-plus mandate with Western Asset Management Co., which at 7-8% of its assets is too much with one manager, Kushner said, adding that WAMCO has done a "phenomenal job." Bridgewater Associates, which manages $480 million for the plan in global bonds, is encouraging all its clients to move out of traditional long-only portfolios into its higher alpha strategies. The fund's other global manager is Fischer Francis Trees & Watts, with $360 million. "We're encouraging all the current managers to re-bid," he said. "They've done reasonably well."
Kushner expects to hire between three and six managers. It expects to select semi-finalists in March, finalists in May and then fund mandates in June. Core-plus managers in eVestment Alliance's database that have a track record of exceeding their benchmarks by 50 basis points net of fees will be sent the RFP and other managers are welcome to request it. It will also be posted on the plan's Web site. The RFP is geared toward finding out how managers generate excess returns and what their skill sets are.
Owing to the RFP, "we go into a blackout period," Kushner said, where staff members are not allowed to speak with managers and he has to report any conversations he has with participating managers to the plan's executive director. "I have a whole bunch of friends in the fixed-income world who said, 'Shoot, I can't talk to you for six months.'"