SFERS Protest
Pickets at SFPOA headquarters protest the replacement of Herb Meiberger and SF's Retirement Fund's hedge fund flimflam
City’s Retirement System Funds Newspaper Looters
Heath Freeman
Heath Freeman, president of the "vulture" hedge fund,
Alden Global implicated in the deaths of over 3,000 news-
paper jobs, a "partner" of Cerberus financed by SFERS funds.
Photo courtesy of The Daily Beast

With a trail of "News Deserts" left behind, Cerberus rakes in profits from SF Taxpayers

Public employee pensions are of public concern. While employees pay into retirement plans like the San Francisco Employee Retirement System (SFERS), the bulk of the contributions come from the employer – the taxpayers. The third source of revenue is income from investments recommended by SFERS’ Chief Investment Officer and approved by the 7-member Retirement Board.

Chief Investment Officer William Coaker Jr.
SFERS Chief Investment Officer William Coaker Jr.

When investment returns decline, contributions from the employer, and to a lesser extent the employees must make up the deficit. Much attention has been focused on this expanding “unfunded liability” as the number of retirees grows, benefits are boosted, and investment income declines. As of 2020, SFERS is just 83% funded, representing a shortfall of $5.4 billion. Ultimately, the City’s General Fund will have to cover the deficit. In other words, when pension funds are underwater, taxpayers get soaked. Several SF Civil Grand Juries have addressed this precarity; 2008-09 “Pensions Beyond Our Ability to Pay”, 2009-10 “Pension Tsunami: The Billion Dollar Bubble”, and 2016-17 “The San Francisco Retirement System: Increasing Understanding and Voter Oversight.”

Unfunded liabilities impose performance pressure on most pension funds, including SFERS. That pressure to earn more can lead to undue risk-taking and moral hazard. Some of those risks and hazards are social, not just financial.

Socially Responsible Investments

Hence, another important public interest is the nature of the investments secured by public employee retirement plans. SFERS abides by an “Environmental, Social and Governance Policy” that guides socially-responsible investing practices. That policy requires SFERS officers to monitor their investments to ensure that “they deliver positive environmental or social impacts.” So, SFERS has divested from tobacco, Sudan, firearms and thermal coal. In a nod to climate change, it aims for a “net zero emissions” portfolio by 2050. The 2020 SFERS Annual Report also cites an intention to “increase racial and gender diversity on corporate boards.”


As of 2020, SFERS is just 83% funded, representing a shortfall of $5.4 billion. Ultimately, the City’s General Fund will have to cover the deficit. In other words, when pension funds are underwater, taxpayers get soaked.”


Deviating from Social Responsibility

However, SFERS  invests in private equity firms and hedge funds that may not be socially responsible - and may even be predatory, grasping revenues regardless of social impacts. No qualms about making a fortune from the misfortune of others.

In 2014, outrage flared because the financial advisors SFERS had hired to provide advice on hedge fund investments were themselves operating a hedge fund – a potential conflict of interests. That same year, the International Business Times also reported that Retirement Board member Wendy Paskin-Jordan placed her own money into a private fund that managed SFERS money – an apparent violation of SFERS rules and another potential conflict of interests. Patrick Monette-Shaw probed her other investments which included hedge funds.

In 2017 City employees and retirees protested SFERS’ plan to invest 15% of its holdings in hedge funds. Opposition to hedge funds centered on their opacity, rapacity, high fees and modest returns. At the time, the huge California Public Employees Retirement System or CalPERS had divested from hedge funds. In response to public pressure, the SFERS Retirement Board offered to cut its hedge fund investments to 5%. One long-time Retirement Board member, Herb Meiberger, a CPA and university Finance Professor, valiantly opposed any hedge fund investments. But he lost his seat to retired police officer Al Casciato, who backed hedge funds along with several City unions. Subsequently, SFERS’ Chief Investment Officer William Coaker, Jr., who earned $703,000 in pay and benefits in 2019, boosted hedge fund investments. He also increased private equity assets at the expense of public equities.

Sylvia Alvarez Lynch
Protester Sylvia Alvarez-Lynch

According to the 2020 SFERS Annual Report, SFERS holds $26 Billion in assets. Of these, 21.3% or $5.5 billion are invested in Private Equity while 14.2% or $3.7 billion are allocated to a murky “Hedge Funds/Absolute Return” category.  Interestingly, in fiscal year 2019-20, SFERS’ private equity investments earned just 6% compared to 7.9% from its public equity holdings. Meanwhile, its Hedge Fund/Absolute Return portfolio lost 3.2%.

Although SFERS discloses the returns from these investment categories, its annual reports do not reveal what private equity firms and hedge funds did with the money SFERS allocated to them. The identities of these private companies can only be obtained by requesting SFERS’ biannual investment reports.

SFERS Feeds Vulture Funds

In a must-read piece by investigative journalist Julie Reynolds, she notes that the private equity firm Cerberus Capital Management has received “tens of millions” from SFERS. Records obtained by the Westside Observer show that SFERS has committed $570 million to Cerberus since 2006. Somewhat less, but still hundreds of millions has actually been transferred from SFERS to Cerberus as of December 2020.  Why is that a problem? Well, Reynolds found that Cerberus owns Tier 1 Group, the company that trained 4 of the assassins who dismembered Washington Post journalist Jamal Khashoggi.

 Further, Cerberus specializes in acquiring distressed businesses and has partnered with - and financed - the notorious hedge fund, Alden Global Capital.

Cerberus Management
A trio of really swell guys. Lee Millstein, President, Daniel Dejanovic, European Real Estate and Ron Rawald, Sr. Managing Director, top Cerberus Capitol Management team

Alden is widely reviled as a “vulture hedge fund” that gobbles up distressed newspapers, saddles them with the debt Alden incurs to buy them, draws out management fees, sells off their assets, decimates their newsrooms, cuts salaries and ramps up workloads. While claiming to salvage insolvent newspapers, Alden tries to extract 20% in profit margins from newspapers that had managed with 10%. If that fails, Alden shuts down the paper and sells off its real estate and property. Plus, Alden fights off bids from philanthropic buyers who want to preserve struggling newspapers rather than strip them for parts.

All this pillaging eviscerates the news gathering and distribution functions of acquired newspapers. By draining the lifeblood of hundreds of community newspapers, Alden creates “news deserts” across the nation. Locally, Alden bought and butchered the venerable but bankrupt Oakland Tribune in 2016, reducing it to a weekly insert in the consolidated East Bay Times. Ongoing staffing cuts precipitated a 2018 protest by Pulitzer Prize-winning journalists from Alden’s consolidated Bay Area News Group.  Alden also owns the San Jose Mercury News.

Herb Meiberger
Protesting Commissioner Herb Meiberger

Resistance from members of The NewsGuild – Communications Workers of America has focused on exposing and petitioning against Alden’s parasitic enterprise. But other hedge funds are joining the feeding frenzy. For example, Chatham Asset Management bought the Sacramento Bee last year. As newspapers struggle with financial reversals, hedge funds are taking over the industry and sacrificing Journalism on the altars of profit and greed.

Shadow Banks Fuel Predation

Vulture funds like Alden are enabled by loans from “shadow banks” like Cerberus. Shadow banks are largely unregulated finance companies that offer loans and credit outside of the constraints of the commercial banking system. Beyond fueling leveraged buyouts, shadow banks sparked the 2008 Financial Crisis by taking on outrageously-leveraged debts. Taxpayers bailed them out. So it’s jarring that SFERS has invested so much in Cerberus. However, SFERS informed the Westside Observer that it has not invested directly in Alden Global Capital.

Derek Kerr
Protester Derek Kerr

SFERS’s investment policy is to “maximize the expected return of the fund at an acceptable level of risk.” While collecting returns from its investments with Cerberus, SFERS is sponsoring social harms that conflict with its Environmental, Social & Governance Policy. Dismembering newsrooms and depriving communities of critical information is a risk that should be unacceptable in San Francisco. SFERS should assess the ethics of Cerberus’ funding of Alden Global Capital - and divest from firms driven by a “greed-is-good” mindset.

Dr. Derek Kerr is a San Francisco investigative reporter for the Westside Observer Contact: watchdogs@westsideobserver.com

September 2021

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