The San Francisco City and County Employees’ Retirement System’sboard has voted 6-1 to move 5 percent of its $20 billion fund intohedge funds.

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It’s a win for hedge fund proponents, sort of. Last year,some of the fund’s staffers were pitching a 15-percentallocation.

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That recommendation, however, drew the ire of participantsin the plan, who voiced their concern over hedge funds’ high feesand secrecy. CalPERS’decision to divest its entire hedge fund allocation inSeptember – $4 billion worth of investments – fueled the debateover the appropriateness of hedge fund allocations in retirementfunds.

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To account for the new hedge fund allocation, SFERS’ U.S. andforeign stock holding will be drawn down to 40 percent of theportfolio, from 47 percent, and private equity investments willincrease to 18 percent from 16 percent, according to reporting inSfgate.com.

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Fixed-income exposure will also be reduced, to 20 percent from25 percent.

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In a memo, William Coaker, SFERS’ chief investment officer, saidthe board took participants’ concerns into consideration, but thatthe fund’s staff believes hedge funds “can play an important roleto increase the stability of our funded status, improve ourperformance in down markets, reduce volatility and increase returnsover the broad market.”

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The fund is 92 percent funded -- higher than most and certainlybetter than the state pension system’s 81 percent.

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Globally, hedge funds posted underwhelming returns in 2014. The assetclasses’ 3.78 percent return, its lowest since 2011, lagged the DowJones Industrial Average, which posted a 7.5 percent return in2014.

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That, however, did not deter investors. Total assets in thefunds grew to $3.02 trillion worldwide, up from $2.66 trillion theprevious year, according to data from Preqin, a data provider onalternative asset investing.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.