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SD pension system ranked No. 1 private equity portfolio

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The San Diego City Employees’ Retirement System (SDCERS) has the top-performing private equity portfolio of any public pension plan in the country, according to a survey released Thursday by the Reuters PE investment news site.

The survey, conducted by Bison Financial Group, ranked 160 pension plans throughout the nation based on the performance of the private equity funds they were investing in. It found that the funds in SDCERS's portfolio had the best performance, followed by the retirement plans for state workers in Missouri and employees of the Los Angeles water and power systems.

“The independent acknowledgement that SDCERS is performing exceptionally well demonstrates the great improvements made over the past decade,” said San Diego City Council President Todd Gloria.

The ranking comes on the heels of SDCERS's preliminary estimates last week that it generated a 16.6 percent net return on stock investments during the fiscal year that ended June 30, more than twice as much as the 7.25 percent actuarially assumed rate that the system uses for planning purposes.

The preliminary report, which did not include investments in private equity funds or real estate, estimated that assets under management grew by $900 million over the past year, pushing the total to a record-breaking $7 billion. A final report will be issued sometime this fall.

The Reuters ranking and $7 billion milestone cap a major turnaround for the system, which was hit badly by political scandals in the early part of the last decade and a sharp decline in the value of its portfolio during the real estate and stock market crashes that triggered the Great Recession.

At that time, City Attorney Jan Goldsmith unsuccessfully sued the system to pay for its own losses rather than having the city cover them, which had been the practice for the previous 70 years. The fund argued that the losses were temporary and were outweighed by a long record of gains above the assumed rate, which reduce the city's pension obligations. Despite the sharp dip during the recession, the plan has averaged a 9.4 percent rate of return over the past 25 years.

SDCERS's private equity investments -- the focus of the Reuters study -- consists of $580 million in 45 different funds, including three highlighted by Bison: Siris Partners II, investing largely in the high-tech, data transmission and telecommunications industries; Avista Capital II, specializing in energy, health care, consumer goods and manufacturing; and the Alinda Infrastructure Fund.

SDCERS CEO Mark Hovey attributed the high ranking of the private equity portfolio to the structure of the agency's investment program, the work of the investments team and the system's board of administration and "the quality of the dialogue between staff and consultants."

SDCERS administers defined benefit plans for the city of San Diego, the San Diego Unified Port District and the San Diego County Regional Airport Authority, and provides service retirement, disability retirement, death and survivor benefits for more than 20,000 members.

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