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  • 1. REQUEST FOR PROPOSAL FOR ACTIVE DOMESTIC LARGE CAPITALIZATION EQUITY INVESTMENT MANAGEMENT SERVICES SS/OP/TREASURER/022304 THE REGENTS OF THE UNIVERSITY OF CALIFORNIA Mel Stanton The Assistant Treasurer February 23, 2004
  • 2. THE REGENTS OF THE UNIVERSITY OF CALIFORNIA REQUEST FOR PROPOSAL ACTIVE DOMESTIC LARGE CAPITALIZATION EQUITY INVESTMENT MANAGEMENT SERVICES SS/OP/TREASURER/022304 TIME SCHEDULE 1. Date of Issue: February 23, 2004 2. Deadline to Submit Written Questions: March 1, 2004 3. Final Filing Date: March 19, 2004 4. Proposal Evaluation: April, 2004 5. Finalist Interviews / On Site Inspections May, 2004 6. Contracting / Funding June, 2004 7. Conclusion/Notice to Participants July, 2004 _________ The University is requesting proposals from qualified firms interested in providing active large capitalization equity investment management services. This Request For Proposal (“RFP”) is available on the University’s website at www.ucop.edu/treasurer. If you are interested, please submit an original proposal by 4:30 PM, PDT, Friday, March 19, 2004, to the University’s procurement officer: Stuart Davis Director, Strategic Sourcing Re: SS/OP/TREASURER/022304 University of California 1111 Franklin Street, 10th Floor Oakland, CA 94607 Additional instructions for submitting the RFP are included in the RFP. Questions concerning the RFP must be submitted in writing via e-mail by 4:30 PM, PDT, Monday, March 1, 2004. Thank you for your interest in this RFP and we look forward to your response.
  • 3. THE REGENTS OF THE UNIVERSITY OF CALIFORNIA REQUEST FOR PROPOSAL ACTIVE DOMESTIC LARGE CAPITALIZATION EQUITY INVESTMENT MANAGEMENT SERVICES SS/OP/TREASURER/022304 TABLE OF CONTENTS PAGE I. BACKGROUND INFORMATION ………............................................................. 4 II. SCOPE OF SERVICES ……………………............................................................ 4 III. PROPOSAL REQUIREMENTS AND INFORMATION TO BE PROVIDED BY INVESTMENT MANAGER.............................................................................. 6 IV. SUBMISSION OF WRITTEN QUESTIONS ......................................................... 7 V. ADDENDA: ERRORS AND OMISSIONS ............................................................ 7 VI. SUBMISSION OF PROPOSALS ............................................................................. 8 VII. STANDARDS FOR EVALUATING PROPOSALS............................................. .10 VIII. TERMS OF ENGAGEMENT................................................................................. 11 IX. COMMENCEMENT DATE................................................................................... 11 ATTACHMENTS A. Fee Proposal B. Representations and Warranties and Minimum Requirements C. Proposal Questionnaire
  • 4. -4- THE REGENTS OF THE UNIVERSITY OF CALIFORNIA REQUEST FOR PROPOSAL ACTIVE DOMESTIC LARGE CAPITALIZATION EQUITY INVESTMENT MANAGEMENT SERVICES SS/OP/TREASURER/022304 I. BACKGROUND INFORMATION The Office of the Treasurer of The Regents of the University of California (“Treasurer”) is responsible for managing the investments of the University of California (“University”). The University includes the ten campuses, and five teaching hospitals, and manages three national laboratories, under contract with the Department of Energy. The University of California is administered by the Regents of the University of California, a California corporation recognized in the California constitution. The Regents of the University of California is under the overall direction of a board (“Board of Regents”). The three University funds which will be included in the domestic large capitalization equity investment assets to be managed by the Investment Managers selected pursuant to this RFP, are: 1) The University of California Retirement Plan (UCRP) which is a defined benefit pension plan (total assets of $38.7 billion as of 12/31/03); 2) the General Endowment Pool (GEP) which is the University’s primary investment vehicle for endowed gift funds (total assets of $4.7 billion as of 12/31/03); and 3) the 403(b) Equity Fund which is a University provided retirement fund available to University of California employees (total assets of $2.9 billion as of 12/31/03). The three funds are collectively referred to in this RFP as “the University Funds.” The domestic large capitalization equity investment assets, which would be managed by the successful Investment Managers, would come from any or all of the University Funds, depending on the investment policies of the Treasurer at the time. The Treasurer seeks to augment the University Funds investment portfolio through the use of active separately managed domestic large capitalization (core, value or growth) equity portfolios benchmarked to one of the Russell Top 200, Russell Midcap or Russell 1000 Tobacco-Free Family of Indices. The general purpose of this RFP is to solicit proposals from firms with expertise in active management of large capitalization equity assets, and to award the University-selected Investment Managers, the opportunity to actively manage that portion of the University Funds allocated to domestic large capitalization equity investments. Investment Managers may submit a large capitalization core, value or growth portfolio. The Treasurer would also encourage proposals benchmarked to other tobacco-free style-specific domestic large capitalization value or growth benchmarks rather than the Russell Top 200 or Russell 1000 Tobacco- Free Indices II. SCOPE OF SERVICES The intent of this RFP is to select a number of investment managers to actively manage approximately $5.5 billion with domestic large capitalization equity mandates. Each Investment Manager selected will manage between $400 and $800 million of assets in an active large capitalization equity portfolio funded from the University Funds. This
  • 5. -5- amount may change depending on the Treasurer’s then existing investment policy. In addition, there will be performance and risk guidelines associated with this mandate. A. The Investment Managers will have discretion over stock selection of the active domestic large capitalization equity portfolios benchmarked to one of the Russell Top 200, Russell Midcap or Russell 1000 Tobacco-Free Family of Indices, or other suitable tobacco-free index. Treasurer-approved investments will be described in the Statement of Investment Guidelines, Objectives and Performance Criteria in the University contracts awarded to the selected Investment Managers. B. Under the contract with the University, the Investment Managers: a. Will be subject to guidelines established by the University (“University’s Statement of Investment Guidelines, Objectives and Performance Criteria”), or simply, “Investment Guidelines”; b. Will have responsibilities which may include securing and voting the University’s interest in all tender offers, mergers, recapitalizations, and taking all corporate actions involving large capitalization portfolio securities; c. Will keep and maintain a record of how the Investment Manager executed all such corporate actions, and, on a quarterly basis, provide the University with a detailed written report, identifying the company, the number of shares the University held in the company, the issue on which the vote was taken, and the action taken by the Investment Manager. d. Reconcile statements and transactions on a monthly basis with State Street Bank, the custodian for University investment assets. C. The Investment Manager will adhere to the Investment Guidelines, which will be developed by the University specifically for each manager chosen and will be incorporated into the contract. D. The Investment Manager will provide advice to the University’s Board of Regents and to the University’s investment staff concerning market conditions, including positive and/or negative trends, and various security-related issues, such as corporate actions proposed to be taken by the company in which the Investment Manager has invested the University’s assets. E. The Investment Manager will provide written performance reports to the University investment staff, and to consultants, as requested by the University, by the tenth working day after each month-end. Holdings as of month-end and transactions that occurred within the portfolio during the month will be provided by the third working day after month-end to the University investment staff. F. The Investment Manager will attend Investment Committee, Board of Regents and/or investment staff meetings in California, as requested by the University. G. All custody and trust services required in connection with the activities of the Investment Manager shall be managed by State Street Bank. H. The Investment Manager may be asked to vote proxies and to provide proxy reporting with regard to a separate managed portfolio. Managers with proxy voting
  • 6. -6- responsibility will be required to provide proxy voting reports to University investment staff on an annual basis, or as requested by the University. III. PROPOSAL REQUIREMENTS AND INFORMATION TO BE PROVIDED BY INVESTMENT MANAGER The University’s requirements for the information to be contained in the RFP are as follows. The University reserves the right to reject any proposal that, in the sole and exclusive judgment of the University, fails to provide all of the information requested below. In the event that none of the proposals is satisfactory, then no selection will be made. Please provide the required information in the same order in which it is requested here. A. Cover Letter The RFP must include a cover letter. It must also be signed by the individual who is authorized to contractually bind the proposing Investment Manager. An unsigned cover letter may cause the proposal to be rejected. The letter must also contain the following: 1. The Investment Manager's name, address, e-mail, telephone and facsimile number. 2. The Investment Manager's Federal Employer Identification Number and, if applicable, Corporate Identification Number. 3. The name, title or position, e-mail address, and telephone number of the individual signing the cover letter on behalf of the Investment Manager. 4. A statement, signed by the person purporting to have the authority to commit the Investment Manager to terms of the proposal, indicating that the signer is authorized to legally bind the Investment Manager to contract if the terms of the proposal are accepted by the University. 5. The name, title or position, e-mail address, and telephone number of the primary contact and/or account administrator, if different from individual signing cover letter. 6. An acknowledgement by the Investment Manager that the proposal is a firm and irrevocable offer good for one (1) year from the date of the proposal. 7. A statement that the Investment Manager is willing and able to perform the services described in this RFP. 8. A statement that the Investment Manager has available the staff and other resources required to perform all services required by the RFP and to provide all required deliverables within the specified time frames.
  • 7. -7- B. Fee Proposal Investment Managers must submit their fees in the format prescribed in Attachment A, Fee Proposal. Any deviation from the prescribed format, which in the sole opinion of the University is material, may result in the rejection of the proposal. The proposed fee shall include all costs and expenses for providing to the University the services as described in this RFP, and shall be fixed for three years. The University will also consider proposals for a performance-based fee. C. Representations and Warranties and Minimum Requirements All Investment Managers are required to submit a signed copy of the Representations and Warranties and Minimum Requirements in Attachment B of this RFP. The statement must contain sufficient information as prescribed to assure the University of its accuracy. Failure to provide complete information may result in the rejection of the proposal. D. Proposal Questionnaire Investment Managers must complete and return the Proposal Questionnaire attached hereto as Attachment C. The information requested must be provided in the format prescribed in Attachment C. Proposals, which in the sole opinion of the University materially deviate from the prescribed format, may be rejected. All responses to the questionnaire will be subject to verification for accuracy. Proposals containing false or misleading information may, at the sole discretion of the University, be rejected. IV. SUBMISSION OF WRITTEN QUESTIONS Questions Investment Managers may have regarding the information or requirements contained in this RFP must be received by the University via e-mail at RFP.TO@ucop.edu no later than March 1, 2004, at 4:30 PM, PDT. All questions received by this date will be answered by the University in writing on the University website: www.ucop.edu/treasurer. Sources of the questions will not be revealed. V. ADDENDA: ERRORS AND OMISSIONS The University may modify any part of the RFP in writing by issuing an addendum. Addenda issued prior to the final filing date for submission of proposals will be available on the University website at www.ucop.edu/treasurer. Addenda issued after the final filing date will be sent to each Investment Manager from whom the University has received a proposal. If an Investment Manager discovers an ambiguity, conflict, discrepancy, omission or other error in this RFP, the Investment Manager should immediately notify the University’s procurement officer of such error in writing and request clarification or modification of the RFP. Such notice shall be given prior to the final filing date for submission of proposals. Modifications of the RFP by the University shall be made by
  • 8. -8- addenda. Clarifications by the University shall be issued by a posting to the University website at www.ucop.edu/treasurer . If, prior to the final filing date for submission, an Investment Manager fails to notify the University of a known error, or an error that reasonably should have been known, the Investment Manager shall not be entitled to additional consideration or time by reason of the error or its late correction. VI. SUBMISSION OF PROPOSALS A. Please submit the original proposal in a sealed package by 4:30 PM, PDT, March 19, 2004 to: Stuart Davis Director, Strategic Sourcing Re: SS/OP/TREASURER/022304 University of California 1111 Franklin Street, 10th Floor Oakland, CA 94607-5200 The original must contain original signatures, be labeled "Master Copy", and placed in a loose-leaf, three-ringed binder, which displays the Investment Manager's name on the outside front cover. (Do not submit the Master Copy with spiral binding.) In addition, please send five copies (four bound and one in a loose-leaf three- ringed binder) + 1 e-mailed copy of your proposal by 4:30 PM, PDT, March 19, 2004 to: Melvin Stanton The Assistant Treasurer Re: SS/OP/TREASURER/022304 University of California P.O. Box 24000 Oakland, CA 94623-1000 E-mail: RFP.TO@ucop.edu
  • 9. -9- Also send two copies (one bound and one in a loose-leaf, three-ringed binder) + 1 e-mailed copy of your proposal by 4:30 PM, PDT, March 19, 2004 to: Kathleen Barchick Managing Director Re: SS/OP/TREASURER/022304 Wilshire Associates Incorporated 1299 Ocean Avenue, Suite 700 Santa Monica, CA 90401 E-mail: kbarchic@wilshire.com Wilshire Associates will be assisting the Treasurer in the RFP process. Please ensure that your product information is updated in the Wilshire Odyssey database. If your product is not already included in the Wilshire Odyssey database, please contact Chris Tessman at (310) 260-7262 or ctessman@wilshire.com. The proposal must be accompanied by a cover letter as discussed in Section III that should be signed by a least one individual who is legally authorized to bind the firm contractually. The Representations and Warranties and Minimum Requirements in Attachment B of this RFP, signed by an authorized officer of the firm, must be included as an attachment to the cover letter referenced in the prior paragraph. B. Should your proposal contain proprietary information, a statement to that effect must be included in the cover letter, and a list of all so designated pages must immediately follow the cover letter. (Please label "Proprietary Information" in the upper right hand corner of any pages so designated.) The University will use reasonable efforts to exempt such pages or items from public disclosure except to the extent required by law. The University makes no representations or warranties that such efforts will be successful. Please note that the entire proposal cannot be considered proprietary. Except as specifically otherwise requested by the University, submission of proposals or any portion thereof via facsimile transmission, electronic, or magnetic media shall not be allowed. The University shall not accept or consider any proposal material submitted in this manner. C. If, prior to the final filing date for submission of proposals, an Investment Manager discovers an error or omission in its proposal which it has already submitted to the University, the only method of correcting, modifying, or completing the proposal is to withdraw the proposal in its entirety prior to the final filing date and time by written notification to University. A complete, corrected proposal package may be resubmitted, but not after the final filing date and time. Modification offered by the Investment Manager in any other manner, whether oral, written, facsimile transmission, or otherwise, will not be considered.
  • 10. - 10 - D. The proposals become the property of the University upon submission. All costs for developing proposals and attending interviews are entirely the responsibility of the Investment Manager and shall not be charged to the University. The University accepts no responsibility for lost, misplaced, mishandled, and/or late delivery of proposals. E. An individual, firm, partnership, corporation, or combination thereof, may submit more than one investment product to be considered for this active domestic large capitalization equity mandate. Each product submitted will be evaluated separately from (and with complete documentation specified by the Request for Proposal) any other product(s) submitted by the entity. VII. STANDARDS FOR EVALUATING PROPOSALS The purpose of the proposal evaluation process is twofold: (1) to assess the responses for compliance with the RFP’s minimum qualifications, content, and format requirements; and (2) to identify the Investment Managers that have the highest probability of satisfactorily performing the services requested by the University. The evaluation process will be conducted in a comprehensive and impartial manner as set forth herein. The University may reject any or all proposals and may or may not waive any immaterial deviation or defect in a proposal. The University’s waiver of an immaterial deviation or defect shall in no way modify the RFP documents or excuse the Investment Manager from full compliance with the RFP requirements. Proposals, which contain false or misleading statements, or which provide references which do not support an attribute or condition claimed by the Investment Manager, shall be rejected. Any attempt by an Investment Manager to initiate contact with any member of the proposal evaluation team, the members of the Board of Regents, and/or the University’s staff, other than the procurement officer, during the period the RFP is open for submission of proposals may disqualify the Investment Manager from further consideration. Proposals will undergo an evaluation process conducted by staff within the Office of the Treasurer of The Regents of the University of California. Those Investment Managers, which, on the basis of the submitted proposals, the University believes to meet best the University’s requirements for the delivery of the services sought under this RFP, will be considered finalist candidates and will be visited and interviewed by the University’s investment staff. Based on its evaluation of the proposals, the University staff could determine that there is only one finalist or that there are no finalists. The University investment staff, in its exclusive discretion, shall select such proposals that it considers to be in the best interests of the University. While cost is a consideration, the University reserves the right to award the resulting contract(s) on the basis of all relevant considerations and the University’s overall evaluation of each Investment Manager’s ability to meet the University’s needs. Proposals that are not selected will remain the property of the University. Each proposal submitted will
  • 11. - 11 - receive a formal notice of the University’s decision on the proposal after the accepted proposals have been funded. The University requests that firms submitting proposals await the response of the University and not place calls to the University staff seeking to learn the status of the proposal. VIII. TERMS OF ENGAGEMENT The University’s engagement of any Investment Manager will be documented in a contract between the University and the selected Investment Manager. Although the Investment Manager contract will have a three-year term, the investment management contract will be renewable annually on election by the University. The contract may be terminated by the investment manager, with or without cause, with no less than 30 days’ prior written notice to the University. The University may terminate the contract, with or without cause, at any time by providing written notice to the investment manager. The Investment Manager will be an independent contractor for purposes of this engagement and will be required to indemnify, hold harmless, and, at the University’s election, to defend the University from and against all losses, expenses and claims incurred by the University as a result of the Investment Manager’s negligent or willful acts or omissions. The Investment Manager will be required to provide evidence of insurance coverage deemed appropriate by the University. The University will not indemnify, hold harmless, or agree to limit the liability of the Investment Manager for the Investment Manager’s negligent or willful acts or omissions in connection with this engagement. Unless previously approved in writing by the University, any selected Investment Manager will not be permitted to use, in advertising or promoting its services to others, or otherwise refer to in connection with its communications with others outside the scope of the subject engagement, the fact that it is performing services for the University. IX. COMMENCEMENT DATE The University and the successful Investment Managers shall determine mutually agreeable starting dates. The contracts shall not become effective until signed by all parties.
  • 12. - 12 - ATTACHMENT A THE REGENTS OF THE UNIVERSITY OF CALIFORNIA REQUEST FOR PROPOSAL ACTIVE DOMESTIC LARGE CAPITALIZATION EQUITY INVESTMENT MANAGEMENT SERVICES SS/OP/TREASURER/022304 FEE PROPOSAL Name of Firm Investment Managers must submit their annual fee schedule for active domestic large capitalization equity management services in the format prescribed below. The proposed fee shall include all costs for providing investment services to the University as described in this RFP. The fee earned by the manager will be paid from the portfolio (i.e., deducted from the portfolio). Fees will be paid quarterly in arrears by the University and will be based on the portfolio’s quarterly average of month-end market values as determined by the custodian. The asset-based fee break points should be set forth in the following format. Once the Investment Manager is selected, the fee may be further refined, if a performance fee is chosen. A. Asset Based Fees Market Value Manager’s Fee of Portfolio In Basis Points First $__ Million _____________ Next $__ Million _____________ Next $__ Million _____________ B. Do fees in A above include custody fees? If so, please specify. C. Performance Fee – the University may desire to negotiate a performance fee arrangement. Would your firm accept a performance fee arrangement? If so, what is your proposed fee structure? Signature Title Name of Firm Date
  • 13. - 13 - ATTACHMENT B THE REGENTS OF THE UNIVERSITY OF CALIFORNIA REQUEST FOR PROPOSAL ACTIVE DOMESTIC LARGE CAPITALIZATION EQUITY INVESTMENT MANAGEMENT SERVICES SS/OP/TREASURER/022304 REPRESENTATIONS AND WARRANTIES AND MINIMUM QUALIFICATIONS All Investment Managers must execute and submit a copy of this Attachment B as a part of their proposal: A. Investment Manager warrants that it will not delegate its fiduciary responsibilities. B. Investment Manager warrants that it has completed, obtained, and performed all registrations, filings, approvals, authorizations, consents or examinations required by governments and governmental authorities necessary to provide the services being offered under its proposal being submitted to the University. C. Investment Manager warrants that it meets all of the minimum qualifications applicable to the firm under the RFP as follows: 1. It has at least $2 billion in institutional assets under management in active domestic large capitalization equity portfolios as of December 31, 2003. 2. It is SEC-registered or exempt from registration and if exempt from registration it must provide the nature of the exemption. The Investment Manager must submit its full Form ADV (Parts I and II). 3. It can provide at least a three-year performance record as of December 31, 2003. All performance calculations must be AIMR Compliant. 4. It can attest that the performance history submitted was produced by the team responsible for the management of this account. 5. It has at least three tax-exempt institutional clients invested in domestic large capitalization equity as of December 31, 2003. 6. It has been in operation as an investment management organization for at least three years as of December 31, 2003. 7. It is not proposing a manager of managers strategy. _____________________ Signature Title _____________________ Name of Firm Date
  • 14. - 14 - Page 14 Intentionally Left Blank
  • 15. - 15 - ATTACHMENT C ACTIVE DOMESTIC LARGE CAPITALIZATION EQUITY INVESTMENT MANAGEMENT SERVICES PROPOSAL QUESTIONNAIRE SS/OP/TREASURER/022304 INSTRUCTIONS: The University is soliciting proposals for active domestic large capitalization equity investment management services in the RFP to which this is Attachment C. A. PRODUCT NAME: ___ B. BENCHMARK: _________________ C. NAME OF FIRM: ___ D. MAIN ADDRESS: E. CONTACT: Name: Title: Phone: E-mail: Fax: F. FIDUCIARY CLASSIFICATION: _________Bank _________Insurance Company _________Registered Investment Advisor (Inv. Advisors Act of 1940) _________Affiliate of Fiduciary (name and classification): _________Other: ________________________________________
  • 16. - 16 - ACTIVE DOMESTIC LARGE CAPITALIZATION EQUITY INVESTMENT MANAGEMENT SERVICES PROPOSAL QUESTIONNAIRE SS/OP/TREASURER/022304 SECTION I A. ORGANIZATIONAL BACKGROUND 1. Describe the ownership structure of your firm. Identify any (all) affiliated and subsidiary organization(s). Do investment professionals participate in equity ownership? If so, what percentage? 2. List the location(s) of your headquarters and branch offices and state the primary function of each office. Where does the portfolio management and client servicing function for this separately managed portfolio reside? 3. Describe the levels (U.S. dollar amounts) of coverage for SEC-required (17g-1) fidelity bonds, errors and omissions coverage and any other fiduciary coverage, which your firm carries. List the insurance carriers supplying the coverage and show the amount carried by each. 4. Within the past 3 years, have there been any significant developments in your organization (changes in ownership, personnel reorganization, new business ventures, etc.)? If so, please describe. 5. Describe in detail any potential conflicts of interest your firm might have in the management of this separately managed portfolio. Include any activities of affiliated or parent organizations, brokerage activities, investment banking activities, or any past or current relationships with The Regents and the Treasurer’s investment staff. Include any other pertinent activities, actions, or relationships not specifically referred to in this question that might impact your ability to perform under this arrangement. Also disclose any business relationship with Wilshire Associates and any financial remuneration paid to Wilshire (explain). 6. Please describe your relationship with your clients’ master custodians, actuaries, and other advisors. Do you have any experience working with State Street Bank in a situation in which State Street Bank was the master custodian for one or more of your clients? 7. Over the past three years, has your organization or any officer or principal been involved in any claim or litigation or other legal/regulatory proceedings, investigations or disciplinary actions relating to your investment activities? If so, provide a brief explanation and indicate the current status. 8. Describe your plan and arrangements in place for an alternative worksite should your facilities become inoperative because of fire, earthquake, terrorist actions,
  • 17. - 17 - etc. How long has the plan been in place? How frequently is the plan updated? 9. Provide a specific summary of your firm’s five-year growth plan. Do you have a written five-year plan? Comment on any present or planned areas of emphasis over the five-year period. Address any points you feel are pertinent, but include responses to the following: a) Projected assets under management (indicate assumptions regarding market level changes). b) Projected number of account relationships. c) Planned staff additions; include approximate timing in relation to asset growth. List additions by general category: investment professionals, client service, administrative, and marketing. d) Describe your succession plan to deal with portfolio manager & upper management turnover? e) Plans for the development of new investment approaches or products. f) Plans for any significant research or technology initiatives. g) How do you expect to maintain your competitive advantage as assets increase? B. PROFESSIONAL STAFF 1. Investment Professionals (Answer for total firm): Number of Investment Professionals* Type Total for Firm Equity Large Capitalization Equity Product Shared Dedicated Senior Management Portfolio Managers Research Analysts Economists Total * Do not double count individuals * Do not include Sales, Marketing and Client Service
  • 18. - 18 - 2. Key Investment Professionals List your firm's key professionals in the format provided below. Highlight in bold print those directly responsible for the management of the University’s account, including Client Service. In an Appendix to this questionnaire, provide a detailed biography, description of present responsibilities, the number of accounts and total assets being managed for each person identified. KEY INVESTMENT PROFESSIONALS Investment Experience With Total Name Responsibility Firm + Prior = Years 3. Please describe any changes in professional staff over the past three years. Be specific. 4. Provide an organization chart identifying key professionals in your organization. 5. a. Discuss your organization’s compensation and incentive program. How are professionals evaluated and rewarded? What incentives are provided to attract and retain superior individuals? If equity ownership in your firm is available to employees, on what basis is it determined and distributed? Specific to the proposed product, what is the incentive compensation program for the portfolio managers and analysts on the investment team? b. Describe your firm’s immediate and near-term backup procedures in the event the key investment professional assigned to perform the services requested under this RFP should leave the firm. 6. Identify the five professionals your firm could not afford to lose. What are their roles in the organization?
  • 19. - 19 - C. ASSETS UNDER MANAGEMENT 12/31 12/31 12/31 12/31 12/31 12/31 12/31 1997 1998 1999 2000 2001 2002 2003 a. Total assets under management (all products) ($ millions) b. Total equity assets under management (all products) ($ millions) c. Total institutional equity assets managed in large capitalization equity ($ millions) d. Total assets managed in the proposed large capitalization equity product ($ millions) e. Total institutional assets managed in the proposed large capitalization equity product ($ millions) f. Total assets managed in the proposed large capitalization equity for U.S. tax-exempt clients in separate accounts ($ millions) g. Number of Separate Accounts in (f.) 1. Please list the 5 largest tax-exempt accounts currently managed in your large capitalization equity product. Type/Name Inception Market Value Date (12/31/03) 2. Please list three clients of comparable size as references for whom you have provided large capitalization equity management services. Include client name, address, and name and telephone number of contact person. Also indicate the length of your relationship and assets under management for each reference. 3. What is the minimum account size you would accept on a separate account basis? 4. Please indicate the number of total firm accounts and amount of assets gained or lost for the periods listed below: Clients Gained Clients Lost* Date Number $ Million Number $ Million 1998 1999 2000 2001 2002 2003 * Please indicate the reasons for accounts lost.
  • 20. - 20 - 5. Please indicate the number of total active large capitalization equity accounts and amount of assets gained or lost for the periods listed below: Clients Gained Clients Lost* Date Number $ Million Number $ Million 1998 1999 2000 2001 2002 2003 * Please indicate the reasons for accounts lost. 6. Please discuss your firm's plans for future growth in domestic large capitalization equity management. D. DIRECTED BROKERAGE /SOFT DOLLARS 1. Does your firm accept direction from your clients? Explain. 2. What is the maximum percentage that could be directed by the University that would be acceptable to your firm? 3. Please provide a copy of your written policy statement regarding soft dollars. 4. Please provide a list of services procured under soft dollar arrangements for your firm, including the percent of clients’ commissions used to pay for these services. E. TRADING 1. Describe the general trading strategy as a part of the portfolio management process. 2. Describe the firm’s trading capabilities associated with the product. Include: The average daily trading volume (in $ and number of shares) of the desk. 3. Describe the firm’s execution of trades in your equity portfolios (i.e., pooling of orders, block transactions, etc.). 4. Describe the systems and procedures used to settle trades, monitor trades relative to guidelines, and reconcile accounts with the custodian. 5. Describe how the firm minimizes trading costs. 6. Discuss how your firm monitors the quality of your execution. Do you use any transaction measurement service? If yes, please identify the vendor. 7. What was the average cents-per-share commission on trades executed over the past year?
  • 21. - 21 - F. COMPLIANCE/INTERNAL CONTROL STRUCTURE 1. Provide a detailed summary of your firm’s compliance process and organization. Identify senior or key personnel in the firm’s compliance process. 2. Please attach a copy of your firm’s code of ethics policy. 3. Do you have a real-time (or pre-settlement) compliance monitoring system (i.e., controls that alert you to possible breaches of investment guidelines)? 4. What are your firm’s procedures to ensure that a client’s investment policy is followed and that prohibited activities do not occur? 5. Describe any client investment guideline violations over the past three years. G. CLIENT SERVICING AND REPORTING 1. Which of your firm’s offices would provide the service requested under this RFP? What services would specifically be provided by which office? 2. Who will be the client service officer? How often could the person be available for client meetings? How often could the portfolio manager, chief investment officer and/or firm president be available for client meetings? 3. What contribution can your firm make to the University investment process beyond managing a separately managed portfolio? Will you make research skills and resources available for reasonable special requests? Be specific. 4. Describe how quickly your firm is able to provide accurate, final asset and transaction statements following month-end, in dollar denominated values. Provide samples of client reports. 5. Describe any on-line information or reporting capabilities you make available for client use. Can you provide client reports via e-mail or another electronic form as well as by hard copy? 6. Describe your firm's capabilities for providing customized reports. 7. What additional information is provided to clients to increase their understanding of your investment process (newsletters, economic reviews, etc.)?
  • 22. - 22 - ACTIVE DOMESTIC LARGE CAPITALIZATION EQUITY INVESTMENT MANAGEMENT SERVICES PROPOSAL QUESTIONNAIRE SS/OP/TREASURER/022304 SECTION II A. EQUITY INVESTMENT PHILOSOPHY/ORIENTATION 1. What is the investment style that best describes your strategy? 2. Describe your investment strategy (e.g., top-down; bottom-up; fundamental; quantitative; timing; contrarian; technical), including the importance of each component. 3. Explain the roles of the portfolio manager vs. the security analysts in your investment process. Also describe the roles of various policy/strategy committees (if any). 4. What is your expected level of annualized out-performance over three to five years relative to the Russell 1000 or whichever style index may be more appropriate? 5. Describe the source(s) of value-added performance by this strategy (take as given our allocation to and assumption of market risk for this asset class). Please be specific. Focus on sources of sustainable competitive advantage. What would cause you to reevaluate the process? If available, please provide performance attribution for the product for the three years ending December 31, 2003. 6. Describe the diversification benefits of your investment strategy as part of a multi-manager portfolio for this asset class. Please be specific. 7. Describe the circumstances or market condition that would favor your investment strategy. When can it be expected to be out of favor or unrewarded? What would you do in either case to alter your process? 8. What other investments such as bonds, options, equity index futures, convertibles, etc. would be utilized? What impact would limiting holdings to only publicly traded equities have on the portfolio? Do the portfolios included in your performance composite include any securities that are not publicly traded equities or cash/cash equivalents? 9. What is the approximate percent of total firm revenue generated by this product? Note: You may be asked to provide end of month holdings and monthly returns for a representative “live” separate portfolio as part of the due diligence process.
  • 23. - 23 - B. LARGE CAPITALIZATION EQUITY PROCESS 1. Describe your decision-making process, including: the people involved (i.e., committee, board, etc.) the inputs that are considered and their sources the types of decisions reached, i.e., sector, industry and individual security how those decisions are implemented the methods used to monitor compliance due to portfolio changes 2. Describe your portfolio construction process. What is the universe from which securities are selected? What types of securities are used (common, preferred, convertible, etc.)? Describe in detail your use and frequency of use of derivative securities. Include a discussion of how the use of such securities is consistent with your approach. Detail the advantages, potential risks, risk controls and your expertise with these securities. How many issues are typically held in a portfolio? How are individual sector and security weightings determined? Discuss the quantitative and qualitative processes utilized. What latitude is given to individual portfolio managers within the product team? Who has the ultimate decision-making authority and accountability? 3. How important is benchmark-tracking error in portfolio construction? Is it measured and managed? If so, how? Can you adjust the risk level if requested? 4. Describe your buy/sell disciplines. What market capitalization and liquidity criteria meet the requirements of your buy/sell discipline? Describe any limits on market capitalization ranges in the portfolio. What valuation approaches are used in evaluating stocks? What specific fundamental factors (such as P/B, earnings, sales margins) are integral to the stock selection process? What is the relative importance of these factors? What factors dictate your sell decision? Under what circumstances would your firm depart from these disciplines? Have you ever departed in the past? If so, please describe when and why. 5. What is the expected annual turnover (the lesser of purchases or sales divided by average market value) for a large capitalization equity portfolio? What was the actual annual turnover for each of the past three years ending December 31, 2003? 6. Would you be able to manage an account that meets the benchmark criterion to exclude tobacco stocks?
  • 24. - 24 - 7. Provide your internal guidelines for the proposed large capitalization product under a fully discretionary basis. Include the following: Maximum sector exposures. Maximum security exposure at purchase and at market value. Types of financial instruments used (common, preferred, convertible, derivatives, etc.) Market capitalization ranges by security. Forecasted tracking error (if used). 8. Is an analysis of corporate management and governance incorporated into your research and security evaluation process? If so, how is it incorporated into buy & sell decisions? C. RESEARCH 1. Describe the structure and organization of your firm’s research capability. Are the research analysts centralized or dedicated to this mandate or team? What external research sources do you use? What percentage is external? 2. Describe any technical or quantitative support processes or tools used in the research process. 3. Using 100% to reflect the aggregate of your firm’s research effort, indicate the relative importance of each of the following elements to the research process: Sector analysis % Industry analysis % Fundamental analysis of companies % Total 100% 4. Describe the major research and technology initiatives implemented in the past three years. How did these initiatives enhance your firms’ capabilities? D. CORPORATE GOVERNANCE 1. What procedures have you established to ensure that corporate actions (i.e., tenders, recapitalizations, reorganizations, mergers, indenture changes, etc.) on large capitalization securities are received and executed on a timely basis? 2. What proxy voting policy do you apply to an active large capitalization equity portfolio? Provide a current copy. How is it executed? 3. Please describe your reporting capabilities regarding corporate actions. 4. Do you anticipate strengthening/expanding your capabilities in the corporate actions area over the next 12 months? If so, please describe your goals in this area.
  • 25. - 25 - E. RISK MANAGEMENT – COMPLIANCE 1. Do you have a risk oversight officer who operates independently from portfolio managers or other investment policy decision makers? (If so, please provide name and phone number.) Is risk oversight part of or separate from general compliance activities? 2. Do you have a written policy concerning general risk oversight policies and objectives? (If so, please provide a brief summary of your risk oversight framework and strategy.) 3. How often do you review general risk oversight policies and procedures to ensure that they reflect current practices in the investment industry? 4. How do you measure and monitor risk to ensure that risk parameters are in line with the benchmark and within client guidelines? Who is responsible? 5. Which AIMR standards or codes has your firm adopted? How are they enforced or monitored? 6. What regulatory organizations perform audits or have authority over your firm? What area(s) does each oversee? 7. Does your firm have an internal auditor? If so, what procedures, related to our organization, have been reviewed by the audit staff? 8. Has your firm had any independent third party internal control review (SAS 70) performed? Please provide a copy of SAS 70 if available, or other internal control review documentation, preferably prepared by an independent third party. 9. What CPA firm performs your annual audit? What type of opinion did the reports from the last two years contain? Please provide copies of the firm’s most recent audited financial statements and auditor’s management letter. 10. Please provide a flowchart showing the process of purchasing a security from analysis to settlement showing who at your firm performs each activity, approves each step, and reviews the step for accuracy, completeness, and compliance. 11. How does your firm choose and retain brokers? How is “best execution” evaluated? 12. How are cost and market value reconciled with the custodian bank? How are differences resolved? 13. How often does your firm price the portfolio? What method(s) and what source(s) does your firm utilize to price the portfolio?
  • 26. - 26 - 14. What research or non-research items does your firm receive for commission flow (soft dollars, credit for order flow, etc.)? Please give who from, cost, etc. How does each of these items benefit the portfolio? F. RISK MANAGEMENT – INVESTMENT PROCESS 1. Briefly describe your risk control procedures for the total portfolio. Please distinguish the portfolio management process from the security selection process (see also next question). 2. Briefly describe your risk control procedures for individual securities. 3. Describe the risk metrics employed in managing the portfolio (e.g., beta, tracking error). How are limits set (i.e., how much deviation is allowed)? 4. Describe any risk adjusted performance measures or statistics employed in managing and monitoring the portfolio. 5. Describe the use of stress testing or scenario analysis in managing the portfolio. 6. Describe the use of any forward-looking risk models used in managing the portfolio (e.g., BARRA, proprietary model). 7. Describe the use of any other quantitative tools or models (not covered above) used in managing and monitoring the portfolio. 8. Describe your internal guidelines for diversification and concentration for this portfolio. Discuss position, issuer, industry, sector, and region limits, as appropriate. 9. Describe any restrictions on the holdings of particular securities or sectors (not covered above). . 10. Have you used any risk budgeting or risk allocation processes in portfolio management? Please describe, if you have used such an analysis. If you have produced an active risk decomposition into systematic factors (e.g. sectors, styles) and residual security risk for the following dates: December 31, 2003, December 31, 2002, December 31, 2001 and December 31, 2000, please provide the output of your analysis. Provide correlations among the active components of the strategy.
  • 27. - 27 - G. PERFORMANCE 1. For your proposed active large capitalization equity product, please provide in two separate tables quarterly gross and net of fees performance data since inception for the product composite. Assume an account size of $500 million. Indicate if returns are net or gross of custody costs. Certify that all performance is AIMR compliant. Simulated returns are not acceptable and the proposed large capitalization equity strategy must include a continuous track record. In the tables below, please provide data to at least two decimal places. Specify the market index used as the product benchmark. 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Return % % % % % % % % % % Prod. Index % % % % % % % % % % Difference % % % % % % % % % % Also provide in two separate tables gross and net of fees annualized returns in the format illustrated by the table below: Annualized 1 Year Ended 3 Years Ended 5 Years Ended 10 Years Ended Returns 12/31/2003 12/31/2003 12/31/2003 12/31/2003 Total Return % % % % Prod. Index % % % % Difference % % % % Please provide peer group rankings on an annualized and calendar year basis for the performance listed above. Please also provide a description of the peer group. 2. In addition, please provide in two separate tables monthly gross and net of fees performance data since inception for the product composite. Assume an account size of $500 million. The information must be provided in Excel spreadsheet format as described below. Again, please make sure to provide dates as Excel dates and performance information as numbers with at least two decimal places.
  • 28. - 28 - Please send this Excel spreadsheet as an attachment when you email the RFP. Date Total Product Total Benchmark Performance % Performance % 1/31/01 4.56 2.09 2/28/01 -2.82 -5.00 etc… 3. a. If you have done an attribution analysis of your proposed product’s investment return variance (both positive and negative) from the stated benchmark return, please include the output of your analysis in a format similar to that shown below. In the attribution analysis identify the contributions of sector and stock selection. 2003 2002 2001 200 1999 1998 0 Industry/Sector Selection Stock Selection Other (specify) Total Variance b. Was the attribution calculated internally or externally? If internal, please describe in detail the methodology used; if external, please name your vendor. c. Comment on the degree of dispersion between the investment returns of the accounts within your proposed product composite. A table showing the best and worst returns by account for each of the past three years ending December 31, 2003 should be included.