Public equity team reports outperformance in 2023–24, portfolio diversification and new construction framework

The San Francisco Retirement Board’s public equity team presented its annual review on May 14, 2025, reporting outperformance versus the MSCI All Country World Index in 2023 and 2024, a programmatic reduction of direct China exposure, and a new portfolio-construction framework designed to increase the role of idiosyncratic (stock) selection in driving returns.

Presenters said the public equity portfolio represented about 29% of plan assets at the end of 2024. The team reported the public equity portfolio returned 16.8% in calendar year 2024 versus a 16.4% return for its benchmark; the team emphasized that the outperformance occurred while holding lower relative exposure to the market’s most concentrated positions. The presenters noted the MSCI All Country World Index’s top 10 holdings comprised more than 21% of that benchmark in 2024 while the plan’s top-10 exposure was roughly 16.7%.

The team described several substantive portfolio changes and the motivation behind them: - Reduced direct onshore China (A-share) manager exposure and shifted to obtaining dynamic China exposure through global active managers and EM managers, rather than through dedicated onshore managers. The transcript records staff saying the reduction was deliberate and intended to give the plan more nimble, manager-driven exposure. - Continued thematic tilts to technology/innovation and biotechnology, while recognizing those tilts create higher tracking error. The team said these thematic positions were being actively managed and that they trimmed technology exposure as valuations rose. - Enlarged use of active-extension (long/short) and systematic strategies as a means to add stock-selection alpha while managing net market beta; staff said active-extension managers provide long and short exposure with a net beta near 1 but the capacity to generate stock-selection alpha and reduce portfolio drawdown risk.

Portfolio-construction framework and risk controls The public equity group described a new portfolio-construction framework adopted over the past year. The framework decomposes tracking error to show how much of active risk derives from stock selection versus common-factor bets (country, sector, style). The team said the objective is to increase the fraction of tracking error that comes from security selection (idiosyncratic alpha) and to limit concentrated factor bets. Staff described internal tools developed with the risk team and external consultants (Mercer and Wilshire) to measure manager-level alpha quality, correlation of alphas, contribution to tail risk and the contribution of sectors/countries to total tracking error.

Liquidity and manager oversight The team reported it raised about $1.9 billion in cash in 2024 (part of nearly $3 billion raised over two years) to fund other asset classes, beneficiary payments and tactical allocations. Staff said the portfolio remains conservatively liquid: at year-end, roughly $4 billion of public equities could be liquidated within a month and more than $7 billion within three months under ordinary market conditions. The team also summarized a robust manager oversight cadence: more than 100 manager meetings and manager monitoring activities over the past year, plus operational due diligence through Mercer.

Board questions and discussion Commissioners asked about the effects of global macro and geopolitical tensions on region allocation, how the team treats emerging-market/country exposure as distinct from individual company selection, and whether currency and repatriation risks affect liquidity planning. Staff said most current regional and country-level exposures are driven by global managers’ active allocations and that the team now evaluates exposures more at the company level rather than by maintaining large direct country bets. They added that currency and repatriation have not been a barrier to meeting obligations and that managers typically factor currency into valuation decisions.

The public equity presentation was discussed; no formal vote was required on the discussion item. No members of the public called in on the item.