BOSTON CHICAGO LONDON MIAMI NEW YORK PORTLAND SAN DIEGO MEKETA.COM San Jose City Council
Presentation
San Jose Federated City Employees’ Retirement System
San Jose Police & Fire Department Retirement Plan
March 30, 2023
2a
San Jose Federated City Employees’ Retirement System / San Jose Police & Fire Department Retirement Plan San Jose City Council Presentation
Annual Asset Class Returns
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Private
Equity
20.8%
Real Estate
14.3%
Emerging
Equity
18.2%
US Equity
32.4%
US Equity
13.7%
Real Estate
13.3%
High Yield
17.1%
Emerging
Equity
37.3%
Private
Equity
9.2%
US Equity
31.5%
Private
Equity
28.1%
Private
Equity
35.1%
Commodities
16.1%
Emerging
Equity
18.9%
TIPS
13.6%
EAFE Equity
17.3%
EAFE Equity
22.8%
Real Estate
11.8%
Private
Equity
8.9%
US Equity
12.0%
EAFE Equity
25.0%
Real Estate
6.7%
EAFE Equity
22.0%
US Equity
18.4%
US Equity
28.7%
Real Estate
5.5%
Commodities
16.8%
Bonds
7.8%
Emerging
Markets
Debt
17.2%
Private
Equity
20.6%
Private
Equity
10.0%
US Equity
1.4%
Commodities
11.8%
Private
Equity
22.9%
Cash
1.9%
Emerging
Equity
18.4%
Emerging
Equity
18.4%
Commodities
27.1%
Cash
1.5%
US Equity
15.1%
Private
Equity
6.9%
US Equity
16.0%
Real Estate
11.0%
Bonds
6.0%
Bonds
0.5%
Private
Equity
11.3%
US Equity
21.8%
Bonds
0.0%
Private
Equity
17.2%
Hedge Funds
11.8%
EAFE Equity
11.3%
Hedge Funds
-4.1%
High Yield
15.1%
High Yield
5.0%
High Yield
15.8%
Hedge Funds
9.1%
TIPS
3.6%
Cash
0.0%
Emerging
Equity
11.2%
Emerging
Markets
Debt
12.7%
TIPS
-1.3%
High Yield
14.3%
TIPS
11.0%
Real Estate
10.9%
Private
Equity
-6.7%
Emerging
Markets
Debt
13.8%
Emerging
Markets
Debt
2.8%
Private
Equity
14.5%
High Yield
7.4%
Hedge Funds
3.0%
EAFE Equity
-0.8%
Emerging
Markets
Debt
10.2%
Hedge Funds
8.6%
High Yield
-2.1%
Emerging
Markets
Debt
14.0%
EAFE Equity
7.8%
Hedge Funds
10.3%
High Yield
-11.2%
Real Estate
13.1%
US Equity
2.1%
Real Estate
10.7%
Cash
0.0%
High Yield
2.5%
Hedge Funds
-1.1%
Real Estate
8.0%
High Yield
7.5%
US Equity
-4.4%
Hedge Funds
10.4%
Bonds
7.5%
TIPS
6.0%
TIPS
-11.8%
Hedge Funds
10.2%
Cash
0.0%
TIPS
7.0%
Bonds
-2.0%
Emerging
Markets
Debt
0.7%
TIPS
-1.4%
Hedge Funds
5.4%
Real Estate
7.0%
Hedge Funds
-4.5%
Bonds
8.7%
High Yield
7.1%
High Yield
5.3%
Bonds
-13.0%
EAFE Equity
7.8%
Hedge Funds
-5.3%
Hedge Funds
6.4%
Emerging
Equity
-2.6%
Cash
0.0%
High Yield
-4.5%
TIPS
4.7%
Bonds
3.5%
Emerging
Markets
Debt
-5.2%
TIPS
8.4%
Emerging
Markets
Debt
4.0%
Cash
0.0%
EAFE Equity
-14.5%
Bonds
6.5%
EAFE Equity
-12.1%
Bonds
4.2%
Emerging
Markets
Debt
-7.1%
Emerging
Equity
-2.2%
Emerging
Markets
Debt
-7.1%
Bonds
2.6%
TIPS
3.0%
Commodities
-11.2%
Commodities
7.7%
Real Estate
1.6%
Bonds
-1.5%
Emerging
Markets
Debt
-14.8%
TIPS
6.3%
Commodities
-13.3%
Cash
0.1%
TIPS
-8.6%
EAFE Equity
-4.9%
Emerging
Equity
-14.9%
EAFE Equity
1.0%
Commodities
1.7%
EAFE Equity
-13.8%
Real Estate
4.8%
Cash
0.5%
Emerging
Equity
-2.5%
US Equity
-18.1%
Cash
0.1%
Emerging
Equity
-18.4%
Commodities
-1.1%
Commodities
-9.5%
Commodities
-17.0%
Commodities
-24.7%
Cash
0.3%
Cash
0.9%
Emerging
Equity
-14.6%
Cash
2.1%
Commodities
-3.1%
Emerging
Markets
Debt
-5.3%
Emerging
Equity
-20.1%
→ Short-term asset class returns are unpredictable.
San Jose Federated City Employees’ Retirement System / San Jose Police & Fire Department Retirement Plan San Jose City Council Presentation
Current Asset Allocation Targets
(as of December 31, 2022)
Federated
(%)
Police & Fire
(%)
Growth 75 71
Public Equity 49 42
Private Markets 21 25
Emerging Markets Debt 3 2
High Yield Bonds 2 2
Low Beta 8 16
Market Neutral Strategies 3 3
Immunized Cash Flows 5 13
Other 17 13
Core Real Estate 5 5
TIPS 2 2
Investment Grade Bonds 8 4.5
Long Term Government Bonds 2 1.5
→ The San Jose Pension Plan portfolios are well diversified, in order to take advantage of the unpredictability of financial markets.
San Jose Federated City Employees’ Retirement System / San Jose Police & Fire Department Retirement Plan San Jose City Council Presentation
Asset Allocation: 12/31/17 vs. 12/31/22
As of December 31, 2017
Federated
(%)
Police & Fire
(%)
Total Global Equity 28 31
Marketable Alternative Equity 6 n/a
Private Equity 9 8
Global Fixed Income 33 16
Global Core 12 6
Non-Investment Grade Credit 4 5
Emerging Markets Debt 3 5
Private Debt 6 11
Real Assets 13 17
Real Estate 7 7
Commodities 6 7
Infrastructure 5 3
Natural Resources 5 n/a
Absolute Return 11 6
Opportunistic 0 n/a
GTAA n/a 10
Cash 0 1
As of December 31, 2022
Federated
(%)
Police & Fire
(%)
Growth 75 71
Public Equity 49 42
Private Markets 21 25
Emerging Markets Debt 3 2
High Yield Bonds 2 2
Low Beta 8 16
Market Neutral Strategies 3 3
Immunized Cash Flows 5 13
Other 17 13
Core Real Estate 5 5
TIPS 2 2
Investment Grade Bonds 8 4.5
Long Term Govt Bonds 2 1.5
→ Over the past five years, the Pension Plans have:
• moved to a functional asset allocation framework, to better specify the purpose of each asset class, • increased allocations to equities/growth, and
• reduced allocations to high-fee asset classes that could be accessed more cheaply (like Absolute Return and GTAA (Global Tactical Asset Allocation).
San Jose Federated City Employees’ Retirement System / San Jose Police & Fire Department Retirement Plan
S
an
J
ose
City Council Presentation
Management Fee Ratio Trend
1 →
Reducing investment management fees has been a priority over the past five years, and that focus has yielded significant fee savings
.
1 Source: City of San Jose Office of Retirement Services .
* Projections are based on many assumptions with a
potentially wide margin of error. Actual fund management fees will vary as the composition of underlying funds and fund types
changes
.
Projections calculated by multiplying the calendar year 2021 fee ratios for each fund type within an asset class by actua l December 31, 2021 allocations
.
Charts only represent fund management fees, not incentive fees or fund operating expenses .
0.77%
0.73%
0.65%
0.58%
0.54%
0.54%
0.40%
0.50%
0.60%
0.70%
0.80%
0.90%
Federated Pension
0.84%
0.71%
0.59%
0.52%
0.53%
0.53%
0.40%
0.50%
0.60%
0.70%
0.80%
0.90%
Police and Fire Pension
0.81%
0.72%
0.61%
0.54%
0.53%
0.53%
0.40%
0.50%
0.60%
0.70%
0.80%
0.90%
Combined Plans
San Jose Federated City Employees’ Retirement System / San Jose Police & Fire Department Retirement Plan
S
an
J
ose
City Council Presentation
Added Value
→
In the charts above, we have aimed to quantify the increased value in the Pension Plans that has resulted from:
•
higher rankings relative to peers than in the past,
•
the Boards’ decisions to move funds from bonds to equities in early 2020 during the initial COVID -
related
market correction, and
•
the selection of investment managers that have out
performed their benchmarks.
1 June 30, 2019
–
June 30, 2022
.
2 March 31, 2020
–
June 30, 2021
.
672
975
0 200
400
600
800
1000
Federated
Police & Fire
($M)
$ Value
-
Added Due to Change in
Relative Ranking Among Peers
(from 99th
percentile to top quartile)
1 164
131
0 100
200
300
400
500
600
700
800
900
1000
Federated
Police & Fire
($M)
$ Added Due to SAA Move in
March 2020
2 104.7
151.2
0 100
200
300
400
500
600
700
800
900
1000
Federated
Police & Fire
($M)
$ Alpha for 3 Years Ended
June 2022
Disclaimer
WE HAVE PREPARED THIS REPORT (THIS
“REPORT”) FOR THE SOLE BENEFIT OF THE INTENDED RECIPIENT (THE
“RECIPIENT”).
SIGNIFICANT EVENTS MAY OCCUR (OR HAVE OCCURRED) AFTER THE DATE OF THIS REPORT AND THAT IT IS NOT OUR FUNCTION OR RESPONSIBILITY TO UPDATE THIS REPORT. ANY OPINIONS OR RECOMMENDATI
ONS PRESENTED HEREIN REPRESENT OUR GOOD FAITH VIEWS
AS OF THE DATE OF THIS REPORT AND ARE SUBJECT TO CHANGE AT ANY TIME. ALL INVESTMENTS INVOLVE RISK. THERE CAN BE NO GUARANTEE THAT THE STRATEGIES, TACTICS, AND METHODS DISCUSSED HERE WILL BE SUCCESSFUL.
INFORMATION USED TO PREPARE THIS REPORT WAS OBTAINED FROM INVESTMENT MANAGERS, CUSTODIANS, AND OTHER EXTERNAL SOURCES. WHILE WE HAVE EXERCISED REASONABLE CARE IN PREPARING THIS REPORT, WE CANNOT GUARANTEE THE ACCURACY OF ALL
SOURCE INFORMATION CONTAINED H
EREIN.
CERTAIN INFORMATION CONTAINED IN THIS REPORT MAY CONSTITUTE “FORWARD -
LOOKING STATEMENTS,” WHICH CAN BE IDENTIFIED BY THE
USE OF TERMINOLOGY SUCH AS “MAY,” “WILL,” “SHOULD,” “EXPECT,” “AIM”, “ANTICIPATE,” “TARGET,” “PROJECT,” “ESTIMATE,” “INTEND ,”
“CONTINUE” OR “BELIEVE,” OR THE NEGATIVES THEREOF OR OTHER VARIATIONS THEREON OR COMPARA BLE TERMINOLOGY. ANY
FORWARD
-
LOOKING STATEMENTS, FORECASTS, PROJECTIONS, VALUATIONS, OR RESULTS IN THIS PRESENTATION ARE BASED UPON CURRENT ASSUMPTIONS. CHANGES TO
ANY ASSUMPTIONS MAY HAVE A MATERIAL IMPACT ON FORWARD
-
LOOKING STATEMENTS, FORECASTS,
PROJECTIONS, VALUATIONS, OR RESULTS. ACTUAL RESULTS MAY THEREFORE BE MATERIALLY DIFFERENT FROM ANY FORECASTS, PROJECTIONS, VALUATIONS, OR RESULTS IN THIS PRESENTATION.
PERFORMANCE DATA CONTAINED HEREIN REPRESENT PAST PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.