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Request For Proposal


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Request For Proposal

  1. 1. The Center For Investment Research And Management Knowledge Through Experience Request For Proposal The Center For Investment Research And Management (“CIRM”) seeks investment management proposals from CIRM advisory teams (“ADVISORS”) currently registered in the CIRM (Phase II) elective, MF81101 “Advanced Topics: Investment Management.” The purpose of this Request For Proposal (“RFP”) is to identify ADVISORS whose demonstrated capabilities best satisfy CIRM’s investment return objectives and risk parameters, as described herein. The Questionnaire and Document Request discussed below shall be delivered to the undersigned per the specified dates. ADVISORS shall present their proposals to CIRM’s BOARD Of ADVISORS (“BOARD”) on December 12, 2006, at the Lynch Executive Conference Center, Fulton Hall, Room 513. Questions pertaining to this RFP should be directed to: Richard V. Howe Executive Director Center For Investment Research And Management Boston College The Wallace E. Carroll Graduate School Of Management Fulton Hall – Room 320 140 Commonwealth Avenue Chestnut Hill, Massachusetts 02467-3808 _______________________________________________ Richard V. Howe September 12, 2006 Executive Director
  2. 2. The Center For Investment Research And Management I. OVERVIEW Located in the heart of Boston’s vibrant investment community, The Center For Investment Research And Management is a bold initiative of The Wallace E. Carroll Graduate School of Management at Boston College (“UNIVERSITY”). Charged with the responsibility of shaping tomorrow’s investment manager, CIRM’s mission is to develop deep-industry knowledge through a comprehensive program of reality-based coursework, practical training and investment industry work experience. Via a series of core electives spanning three academic semesters, CIRM’s applied- learning curriculum is offered to MBA and MSF candidates who operate as investment ADVISORS competing for the opportunity to manage “live-money” portfolios during the final phase of the program. This RFP contemplates the money-management segment of the curriculum. II. INVESTMENT OBJECTIVES CIRM’s overarching objective is to exploit financial market returns while controlling risk, management fees and transaction costs. The portfolio is to be invested as a part of the UNIVERSITY’S Endowment, which exists to support the institution’s operations over the long term. Many programs and activities are supported by endowment income, which provides revenue independent of tuition, gifts, and other sources. The UNIVERSITY has adopted an endowment spending policy that attempts to meet two objectives: (1) provide a predictable, stable stream of earnings to fund participants; and (2) ensure the purchasing power of this revenue stream does not decline over time. ADVISORS shall ensure that their respective portfolios be invested in accordance with these objectives. Calculation of the annual payout and use of the funds will be in accordance with the endowment spending policy and subject to the approval of the University. While capital preservation is paramount, cautious risk-taking is acknowledged as being warranted to capture satisfactory returns, especially if inflation should resurface. In the response to the RFP Questionnaire,” ADVISORS shall demonstrate the ability of their proposed investment programs to achieve these objectives conditioned on positive and negative stock market environments. The foregoing notwithstanding, CIRM seeks a “balanced” investment approach under which investment risk is diversified across major asset classes (cash, fixed income securities and common stocks). 2
  3. 3. The Center For Investment Research And Management III. GENERAL PROVISIONS DIVERSIFICATION ADVISORS shall maintain a diversified portfolio at all times. Even though it may be adequately diversified geographically and by industry, the portfolio is not diversified if, for example, it contains a large proportion of interest-sensitive stocks (such as utility, bank, finance, insurance, construction or companies with unsound debt structures), or other such groups subject to a single significant economic, social, or political event or investment idea (e.g., a cut in defense spending). TIME HORIZON Investment strategy should be implemented with a relatively long-term perspective. Turnover should be modest so as to minimize transactions costs and custody fees. This point notwithstanding, the manager should take advantage of trading opportunities without becoming a “trader” as the dominant style. A sell discipline is important and sell decisions should be made as carefully as purchase decisions. RESTRICTIONS Investments shall be restricted to marketable stocks and bonds; this precludes private placements, restricted securities and real estate investments, but also nominally public issues for which the market is severely restricted. 1 As a rule, at least 70% of the market value of an equity portfolio should be securities listed on the New York Stock exchange. All other securities shall be of a class listed on a national securities exchange or traded in the over-the-counter market and quoted in the National Association of Securities Dealers Automated Quotation System (NASDAQ). ADVISORS shall not purchase securities on margin, sell short, trade in commodity futures, or deal in put, call or other option contracts or any other derivative financial instruments. IV. ASSET ALLOCATION Given CIRM’s stated investment objectives, a minimum of 25 percent of the consolidated portfolio will be allocated to securities issued or guaranteed by the United States of America and/or investment-grade fixed income obligations of major US corporations. The balance of the portfolio is earmarked for cash equivalents and common stocks. 1 Note that the custody platform employed by the fund does not support the ability to use mutual funds or other securities requiring delivery-versus-payment settlement procedures. 3
  4. 4. The Center For Investment Research And Management FIXED INCOME INVESTMENTS The fixed income component is intended to provide a high level of total return, reliable cash flow, liquidity and risk diversification. Principal and interest rate risks shall be minimized with performance benchmarked against an appropriate bond index. ADVISORS shall minimize principal and interest rate risks, the former somewhat more than the latter. The absolute (annual) objective of fixed income portfolio is to earn no less than 50 basis points in excess of inflation, as measured by the Consumer Price Index (“CPI-U”). EQUITY INVESTMENTS ADVISORS shall exercise a high degree of fiduciary care in the management of the equity component. Investments may be made in domestic corporations or foreign corporations if through depository receipts (e.g. ADRs) traded in the United States, with performance benchmarked against the S&P 500 total return index. The goal of the common stock portfolio is to maximize long-term total return, in a manner consistent with sound investment practice. That said, the total return objective of the equity component is to earn at least a 2% return, after adjustment by the CPI-U. Total return shall be defined as income derived from dividends, interest, and realized and unrealized gains and losses. Advisors shall ensure that the allocation awarded any single position not exceed 5 percent of the equity component upon its initial purchase. Once an initial position is established. ADVISORS shall ensure that the size of any single position not exceed 10 percent of the portfolio and operate to rebalance said allocations within a 30-day period. Additionally, no single industry position allocation shall exceed 10 percent of the equity component upon its initial purchase. Once an initial allocation is established. ADVISORS shall ensure that the size of any industry position not exceed 20 percent of the portfolio and operate to rebalance said allocations within a 30-day period. It is recognized that there will be periods within which absolute return objectives cannot be met owing to general market conditions, hyperinflation, geopolitical events or other such factors not related to sound long-term investment judgment. In attempting to satisfy stated return objectives, ADVISORS are cautioned against style drift relative to their proposed investment program. CASH EQUIVALENTS As set out under “ASSET ALLOCATION” hereto, a portion of the consolidated portfolio is to be invested in cash equivalents. 4
  5. 5. The Center For Investment Research And Management V. OVERSIGHT AND CONTROL As discussed in the “Overview” section of this RFP, the consolidated portfolio is invested as a part of the UNIVERSITY’S Endowment. As such, the account is subject to oversight by the Treasurer’s Office, a member of which will serve on the BOARD. Additionally, the BOARD will consist of senior investment professionals, at least one sophisticated private investor from outside the Boston College community, faulty members and industry leaders. All accounts are subject to full and complete periodic review by the UNIVERSITY’S Internal Audit Department. The UNIVERSITY reserves the right to direct the investments of the accounts when the money-management segment of the curriculum is not in session. Moreover, the UNIVERSITY reserves the right to close the account and manage the assets as part of the UNIVERSITY’S general endowment. CIRM’s Executive Director is the UNIVERSITY’S duly the appointed representative (“REPRESENTATIVE”) for all accounts managed by the ADVISORS and shall shoulder year-round responsibility for portfolio assets. The REPRESENTATIVE and student ADVISORS will have limited trading authority over the accounts as follows: ADVISORS shall transmit all security transactions to the REPRESENTATIVE for review and authorization. The REPRESENTATIVE shall ensure that said transactions are placed with Boston Research and Management, Inc., a registered investment advisor who serves as fiduciary for the accounts. In no circumstance will the ADVISORS; the REPRESENTATIVE; or Boston Research and Management have authorization to withdraw, wire or otherwise transfer funds or securities from the account. The REPRESENTATIVE shall monitor the securities of the portfolio through the summer recess and the fall term with the help of CIRM students as required to meet the objectives and guidelines. VI. ACCOUNT REVIEWS Investment account reviews will be held monthly with the REPRESENTATIVE or at such interval as the REPRESENTATIVE may decide, and sufficiently after each month’s close so as to have performance measurement results available. During each meeting the ADVISORS’ investments will be compared with this document to ensure compliance with the objectives and guidelines. Performance will be contrasted with the appropriate benchmarks reference earlier. ADVISORS will provide the REPRESENTATIVE, as well as UNIVERSITY’S Treasurer’s Office, monthly Statements Of Account that will include the following: 5
  6. 6. The Center For Investment Research And Management • A discussion of the current investment environment as it relates to the ADVISOR’S investment strategy for the most recently ended period. • A forward look at economic and market conditions and the account’s posture relative to the described environment. • Account Appraisal. • Purchase & Sales Report • Realized & Unrealized Gains And Losses Report • Performance By Security Report • A listing of the ten largest equity securities holdings showing market value and percent of total fund market value for each as well as all ten. • Performance History Report VII. MISCELLANEOUS Gains and losses shall not be realized simply for accounting appearances. Exchange Traded Funds may be used for portions of the fixed income or equity component. This statement is not immutable. Requested changes and/or exceptions to its provisions will be in writing and delivered to the REPRESENTATIVE for his written authorization. Simulated investment returns shall take account of the following cost structure (assessed quarterly in arrears): Management Fees Brokerage Custody Fees Asset Class (Annual) Commissions (Annual) Equities 50 Basis Points 5¢ per share 6 Basis Points Fixed Income 25 Basis Points $0 6 Basis Points Cash Equivalents 0 Basis Points $0 6 Basis Points 6
  7. 7. The Center For Investment Research And Management VIII. QUESTIONNAIRE (Due Date: November 28, 2006)  Personnel 1) Primary Client Service Officer: ▪ Address ▪ Telephone: ▪ Fax: ▪ Email Address: 2) Portfolio Manager(s): ▪ Address ▪ Telephone: ▪ Fax: ▪ Email Address: ▪ Responsibilities 3) Research Analyst(s): ▪ Address ▪ Telephone: ▪ Fax: ▪ Email Address: ▪ Responsibilities 4) Financial Accounting Manager(s): ▪ Address ▪ Telephone: ▪ Fax: ▪ Email Address: 7
  8. 8. The Center For Investment Research And Management  Investment Methodology & Process 5) Describe your investment philosophy. 6) Describe your decision-making process for the equity component and responsibilities of the various individuals involved at each stage of the process. 7) Are securities in the equity component of the consolidated portfolio distinguished by particular characteristics? Describe. 8) Describe the universe from which equity positions are drawn and demonstrate the historical ability of your methodology to target superior performing issues. 9) What exclusionary or prudence screens are applied during the investment process? Provide your team’s rationale for this policy. 10) Under what market environments is your investment approach likely to excel (lag)? 11) How do you measure risk in your portfolio? 12) Identify the major risk factors to your investment approach and how you safeguard against them. 13) Does your methodology employ a tactical asset allocation methodology to adjust the cash component of the consolidated portfolio? Describe? 14) How do you identify changing market environments? How do take account of changing environments within the consolidated portfolio? 15) Does your equity methodology allow for opportunistic purchases? Describe. 16) How frequently are equity positions assessed? 17) Describe how you intend to fund the equity component (immediate purchase/averaging). 18) Describe your portfolio pricing and reconciliation procedures. 19) With respect to individual equity positions, describe any constraints employed. 20) Does your equity methodology have a “sell rule?” 21) Describe your fixed income methodology. 22) What is the fixed income component’s anticipated average maturity? 8
  9. 9. The Center For Investment Research And Management 23) Does your fixed income methodology assess the inflation outlook? Describe. 24) What is the fixed income component’s anticipated “real” current yield? 25) What is the fixed income component’s anticipated yield to maturity? 26) How does your methodology take account of potential shifts in the yield curve? 27) With respect to fixed-income positions, describe any constraints employed. 28) Do you anticipate “call risk?” Discuss. 29) What is the range of credit rating among fixed income positions? 30) Does your fixed income methodology contemplate Treasury Inflation Protection Securities (“TIPS”)? Discuss.  Miscellaneous 31) Who is your internal compliance officer? 32) Describe any control procedures which safeguard the integrity of client assets. 33) What compliance and ethics standards do you enforce? 34) How often are you willing to meet with clients? 35) Describe customary communications with clients. 36) Describe any internet-based information or reporting capabilities you offer. 37) What are your team’s overall strengths and weaknesses? 38) What attributes distinguish your investment approach from its competitors? 39) Why is your team best suited for this assignment? 40) Describe your disaster recovery procedures. 42) List any other distinguishing features you wish to bring to the BOARD’S attention. 9
  10. 10. The Center For Investment Research And Management Please provide: • Key Personnel Resumes • ADVISOR Brochure • Organizational chart, indicating administrative, portfolio management, research, accounting and client service functions • Statement of Account (Specimen) • Investment Management Contract (Specimen) • Market Commentary (Specimen) • A Current Representative Portfolio • If you are proposing a back-tested equity strategy, please complete the following table: Strategy Backtest Results Simulated Total Return Equity Return S&P 500 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Annualized Return (1 Year) Annualized Return (2 Years) Annualized Return (3 Years) Annualized Return (5 Years) 10
  11. 11. The Center For Investment Research And Management Annualized Return (10 Years) Annualized Return (From Inception) Mean Return Risk (Standard Deviation) Sharpe Ratio Frequency Of Positive Returns Mean Positive Return Frequency Of Negative Returns Mean Negative Return Average Market Capitalization (11/30/06) Average Annual Turnover Coefficient Of Determination (R-sq) Alpha Beta 11