Retirement Board Commissioner’s Loomerish Defense of the City Pension’s $5 Billion Underperformance

Last month, I published an article on how autopilot stock index funds almost tripled the 2024 returns (22.8%) of the San Francisco Employees Retirement System’s (SFERS) pension plan (7.99%). As the title to my original article spelled out, the opportunity cost to the SF taxpayers and SF public employees was $5 billion just last year.

Substituting index funds for costly alternative investments would also eliminate the need for much of SFERS highly-paid staff, with five employees earning well over $500,000 per year to produce mediocre returns.

The genesis of my article about SFERS’ underperformance was based on two facts:

1. Every year, my personal city employee 401-k style supplementary pension bested the highly compensated SFERS’ staff’s performance, and

2. Last year, 100% of my financial advisory clients earned more than 7.99%.^[1]

After my article was published,

1. On May 27^th, the New York City pension announced it was also following in Yale’s path and shedding $5 billion in alternative investments.^[2] Has SFERS, a traditionally late adopter, been too slow to recognize this growing trend?

2. I found a recent Boston College study that concurred with my analysis on the benefits of index funds over alternative investments,

3. I became privy to an SF Retirement Board commissioner’s spin rationalizing SFERS’ underperformance.

Boston College study

In June 2024, the Center for Retirement Research at Boston College published a study that reached the same conclusions as my article’s thesis. Like my article, the study focused on the same issues: public pension underperformance weighed down by the costs of higher fees and increased staff.

Screenshot from Boston College paper

Boston College anticipated that public pensions would push back and claim that the comparative period of index funds to public pension was too brief. But Boston College’s study covered a long 24-year period that included multiple cycles: the 2000 dotcom bust, the 2008 financial crisis, and 2020 Covid.

Boston College’s study was slightly different than mine it that they used a more conservative 60% allocation to stock index funds and a 40% allocation to bond funds. A 60:40 ratio is appropriate for a human with a limited lifespan, but it’s not necessary for a pension that has an unlimited life.^[3] The superior performance of a 100% allocation to index funds would have exceeded the benefits of even the Boston College’s conclusions.

Another measure of SFERS’ alternative investment failures, managers should have been buying the picks and shovels

During the Gold Rush, the people that became the richest weren’t the miners, but the people that sold products to the miners. Think: Sam Brannan. He became the first gold rush millionaire ($41 billion in today’s dollars) after opening a store to sell supplies to prospectors. Or think: Levi Strauss and blue jeans. Wall Street has assigned this metaphor to the phrase that “it’s better to buy the picks and shovels” of the companies that profit from the speculative fever of others, than to chase a stampeding fad.

In 2014, on the poor advice of Chief Investment Officer William Coaker, SFERS increased the public pension’s allocation to alternative investments. From that day forward, the SFERS’ pension trailed the Standard & Poor’s Index fund by a growing cumulative amount each year.

But what if Coaker had recommended buying the picks and shovels—the companies that package alternative investments, like Blackstone and Kohlberg Kravis Roberts (KKR)? Below is the performance of the picks and shovels versus the S&P 500 and SFERS. By the way, my graph is based on the change in Blackstone’s and KKR’s share prices. I omitted the effect of these companies’ dividends, which would have only made SFERS look worse.

Blackstone and KKR vs. SFERS pension

Note how the deeper SFERS got into alternative investments, the better the private equity firms prospered. Da ya think that has anything to do with the egregious fees public pensions pay (had been) paying to these private equity firms?

Retirement Board commissioner’s spin

When you write articles criticizing the performances of public defenders, judges, or public pension plan managers, it’s natural for the subject not to respond. The excuses are confined to just their trusted friends. I interpret this as a testament to my accuracy.

I was fortunate that an SF retirement board commissioner’s spin regarding my article made a complete circle and landed in my inbox. The commissioner stated,

Started it (the article) then, but put it down after the first few paragraphs of unconnected facts are twisted in an analysis. Accuracy of facts does not appear to be important. Loomerish. Same batch of info not fact checked. Is the S&P 500 the best or fairest benchmark for comparing the results of SFERS Total Portfolio? I’d say No, but if you want to be negative or create controversy, accuracy or fair comparisons are irrelevant.

First, the Retirement Board commissioner has a responsibility to exercise fiduciary care over former coworkers’ assets. Not completing an article about a $5 billion underperformance or extrapolating within a few paragraphs that the rest of the article is “twisted,” is clearly a violation of that commissioner’s fiduciary responsibility.

Second, if my article was inexact, then the commissioner should have cited the specific inaccuracies. But the commissioner obviously didn’t find any mistakes.

Third, If my article was negative and designed to create controversy, was Boston College’s study also negative and controversial?

Fourth, why can Boston College compare public pension total returns to index funds, but when I do it, I’m comparing apples-to-oranges?

Fifth, the Retirement Board commissioner claims that you can’t compare index funds to hedge funds because the adjusted risks are different. Huh? Sorry commissioner, it is a fact that hedge funds are riskier than index funds, so you are using the term “risk adjusted” in the wrong context. What you are essentially saying is that given the chance to double your money by rolling snake eyes (2.7% chance) or tripling your bet by rolling a seven (16.7% chance), you would take snake eyes every day—on your interpretation of a risk adjusted outcome-- with our money.

Is your brain three-quarters empty of three-quarters full?

Too often people are appointed to positions not based on their skills, but because of nepotism or cronyism. Promoted persons tend to rationalize they really have the skills to fulfill their role. They hear new jargon and parrot the words improperly to impress the less informed. They become intellectually incurious.

Contrastingly, smarter people worry that their brain is always ¾’s empty. They live in constant fear that they might have missed something, that they are missing an emerging trend. They devour all content. And despite this insecurity about a lack of wisdom, their knowledge base dwarfs that of the uninquisitive.

In an investment environment where the ground is constantly shifting underneath, SFERS has a commissioner that is so self-assured--a poster child for the Dunning-Krueger effect—that the commissioner won’t read articles or surveys on how competitors are beating our pension by billions of dollars.

Commissioner, out of respect for your service to the city, I have omitted your name, but you need to be more curious. And, by the way, “loomerish” is not a word.

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^[1] This excludes clients over 80 years of age. As one ages, the allocation to steady fixed income investments like Treasury Bills should increase. In 2024, Treasury Bills, whose principal does not appreciate, generated income returns of approximately 4.5%. This sitting-on-the-sidelines bet only trailed SFERS large apparatus by 3.5% percentage points.

^[2] Grant’s Interest Rate Observer June 6, 2025, pages 9-10.

^[3] Similarly, this is how investments should be made on behalf of a 2-year-old compared to a 50-year-old. For the 2-year-old, an aggressive allocation should be made because the child has more time and will live through more market cycles to make up any initial loses. A 50-year-old has fewer years and cycles to offset a down market.