Hum, it is not exactly clear why it is not working, and I can reproduce the issue (which seems to be one from my perspective).
As a workaround, you can drag and drop functions in the project explorer (Tree View) to create the desired hierarchy, it will do the trick.
Maybe just an attention point: when transitioning your Operational Activity into a System Function, do not assume that there is a general pattern where the System Functions you are created are going to be refinement of the functions you transitioned. If you do that at every engineering perspective, you’re duplicating your model at each layer, which is not what Arcadia engineering perspectives are bout (There not refinements of the previous ones, but realizations). More on this in this thread for example: Capabilities in LA/PA