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Purpose

  1. 1. LOS ANGELES COUNTY EMPLOYEES RETIREMENT ASSOCIATION REQUEST FOR PROPOSAL (RFP) INVESTMENT MANAGEMENT SERVICES - COMMODITIES June 29, 2010 PURPOSE The Los Angeles County Employees Retirement Association (LACERA), a $34 billion public fund, is evaluating the capabilities of investment management firms that offer portfolio management services for collateralized commodity strategies. In order to be considered for this assignment, firms must meet the following minimum qualifications: MINIMUM QUALIFICATIONS 1) As of March 31, 2010, the investment firm must have a minimum of $750 million of assets under management in dedicated commodities strategies; 2) The manager’s commodities product must have at minimum a five-year performance history as of March 31, 2010; 3) The product must have generated a minimum excess return (net-of-fees) of 25 basis points over the five-year period ending March 2010. Excess returns are calculated versus either the Dow Jones UBS Commodity Index (DJ-UBS) or the S&P GSCI Commodity Index, whichever is the stated benchmark. If neither is the stated benchmark, utilize which of the two is more appropriate to the strategy in determining excess return; and 4) The submitted product must be offered in a separate account or commingled fund structure. Funds that have barriers to liquidity and transparency, such as lock up periods or other non- traditional public market structures, will not be considered. Additionally, LACERA's Investment Policy Statement requires that its Investment Managers be SEC-registered Investment Advisors under the 1940 Act unless the manager is exempt from registration due to its status as a bank or insurance company. LACERA requires that the firm must conform to the CFA Institute’s Global Investment Performance Standards (GIPS) for performance reporting. SUBMISSION REQUIREMENTS If your firm is interested in participating in this evaluation, please submit six (6) copies, spiral bound (no hard binders or marketing materials) of your written response (maximum 50 pages, one-sided, 12 point size font), and one (1) electronic copy (using Microsoft Word or PDF), on a CD-R (recordable compact disc) to: Mr. Vache Mahseredjian, CFA, CAIA, ASA Principal Investment Officer LACERA - Gateway Plaza 300 North Lake Avenue, Suite 850 Pasadena, CA 91101-4199 In addition to your firm’s response to the questionnaire, please complete the Placement Agent Disclosure, Minimum Qualification Compliance, and Contact Sheet forms.
  2. 2. DEADLINE Completed responses must be received no later than 12:00 noon (PST) on July 23, 2010. Responses received after the specified deadline may be considered for evaluation solely at the discretion of LACERA. ADDITIONAL INFORMATION Respondents are instructed not to contact LACERA personnel directly for meetings or discussions related to this RFP. However, if you seek clarification regarding a question in the RFP, you may send an email to RFP@lacera.com. All questions must be submitted by Friday, July 9, 2010. LACERA’s responses to requests for clarification will be posted on LACERA’s website on Friday, July 16, 2010. Thank you for your interest in providing investment management services to LACERA. Page 2 of 26
  3. 3. LOS ANGELES COUNTY EMPLOYEES RETIREMENT ASSOCIATION REQUEST FOR PROPOSAL (RFP) INVESTMENT MANAGEMENT SERVICES - COMMODITIES GENERAL INFORMATION The Los Angeles County Employees Retirement Association (LACERA) was established under the provisions of the County Employees Retirement Law of 1937. The general management of LACERA is the responsibility of the Board of Retirement. The Retirement Board and LACERA’s staff are responsible for daily operations involving the administration of benefits, accounting functions, and portfolio administration. The Board of Investments is responsible for establishing investment policies and objectives for the employees’ retirement funds. LACERA administers a pension fund with approximately $34 billion in total assets as of May 31, 2010. These assets were invested as follows: 51% in domestic and international public equities, 9% in private equity, 29% in domestic fixed income, 9% in real estate, and 2% in commodities. LACERA’s Board of Investments recently approved an increase in the commodities allocation from 2% to 3%. The expected size of the new mandate is $250 million. SERVICES TO BE PROVIDED LACERA's Board of Investments has elected to retain the services of a qualified commodities investment manager. The mandate will be benchmarked to the DJ-UBS Commodity Index. The mandate should obtain collateralized commodities exposure through futures, swaps or similar commodities-linked derivatives rather than through equities or equity derivatives. The objective of this strategy is to obtain commodities exposure without taking physical delivery of commodities. While the minimum qualifications allow for products offered in either a separate account or commingled fund structure, LACERA has a preference for a separate account. NOTICE TO RESPONDENTS REGARDING FREEDOM OF INFORMATION AND OPEN MEETINGS The information you submit in response to this RFP (“proposal”) will be subject to public disclosure pursuant to the California Public Records Act (Cal. Gov. Code section 6250 et. seq., the “Act”). The Act provides generally that all records relating to a public agency's business are open to public inspection and copying, unless specifically exempted under one of several exemptions set forth in the Act. In addition, if LACERA staff chooses to recommend your firm to the Board of Investments for hiring, such recommendation will appear on a publicly posted agenda for a public meeting of the Board of Investments in accordance with the Ralph M. Brown Act (Cal. Gov. Code section 54950 et seq., the “Sunshine Law”), and your proposal may be included in the agenda packet that is available to the public generally. If it is included in the agenda packet, your proposal will not be exempt from disclosure under the Act. If you believe that any portion of your proposal is exempt from public disclosure under the Act and should not be included as part of the agenda packet, you must mark such portion “TRADE SECRETS,” “CONFIDENTIAL,” or “PROPRIETARY,” and make it readily separable from the balance of your response. Proposals marked “TRADE SECRET,” “CONFIDENTIAL,” OR “PROPRIETARY” in their entirety will not be honored, and LACERA will not deny public disclosure of all or any portion of proposals so marked. By submitting a proposal with material marked “TRADE SECRET,” “CONFIDENTIAL,” or “PROPRIETARY,” you represent you have a good faith belief that the material is exempt from disclosure under the Act; however, such designations will not necessarily be conclusive. Page 3 of 26
  4. 4. You may be required to justify in writing why such material should not, upon request, be disclosed by LACERA under the Act and should not be included in the agenda packet. If a request is made pursuant to the Act for materials you have marked “TRADE SECRET,” “CONFIDENTIAL,” OR “PROPRIETARY”, and of LACERA agrees that the material requested is not subject to disclosure under the Act, LACERA will either notify you so you can see a protective order at your own cost or expense, or LACERA will deny disclosure of those materials. If LACERA denies disclosure, then by submitting your proposal you agree to reimburse LACERA for, and to indemnify, defend, and hold harmless LACERA, its officers, fiduciaries, employees, and agents from and against: any and all claims, damages, losses, liabilities, suits, judgments, fines, penalties, costs, and expenses including, without limitation, attorneys' fees, expenses and court costs of any nature whatsoever (collectively, “Claims”) arising from or relating to LACERA's non-disclosure. By submitting your proposal, you also agree to indemnify, save, and hold LACERA harmless from and against any and all Claims arising from or relating to LACERA’s public disclosure of any such designated portions of your proposal if LACERA reasonably determines disclosure is required by law, or if disclosure is ordered by a court of competent jurisdiction. UNITED NATION PRINCIPLES FOR RESPONSIBLE INVESTMENT On November 19, 2008, LACERA’s Board of Investments adopted the United Nation Principles for Responsible Investment (UN PRI or Principles, www.unpri.org/principles). The Principles were created by the United Nations to provide investors with a global structure for integrating environmental, social, and governance (ESG) criteria into investment decision-making processes to realize better long term returns. As a result, LACERA is requesting that prospective investment managers consider becoming a UN PRI signatory and/or incorporating these Principles into the firm’s investment process, as long as making such a commitment is consistent with your fiduciary responsibilities and does not result in any additional costs. PROPOSALS BECOME LACERA PROPERTY The information you submit in response to this RFP will become the exclusive property of LACERA. It will not be returned to you. CONTRACT NEGOTIATIONS If LACERA’s Board of Investments so authorizes, staff will enter into negotiations with the approved firm(s) to enter into an investment management agreement and/or other appropriate document(s). LACERA may terminate negotiations, at its sole discretion, if it believes a satisfactory agreement cannot be negotiated. LACERA reserves the right to award a contract based upon proposals received; you should not rely upon the opportunity to alter your proposal (e.g., services to be provided, fees, etc.) during contract negotiations. The final contract must allow LACERA to terminate (a) for its convenience upon not more than 30 days notice, (b) if funds are not appropriated for the services to be provided, and (c) for default. RESERVATIONS BY LACERA LACERA reserves the right to cancel this RFP, in whole or in part, any time before the closing date. LACERA will not be liable for and will not reimburse you for any costs your firm incurs in connection with the preparation or submission of any proposal. Page 4 of 26
  5. 5. If you submit a proposal, LACERA reserves the right to make such investigations as it deems necessary to determine your ability to furnish the required services, and you agree to furnish all such information for this purpose as LACERA may request. LACERA also reserves the right to reject the proposal of anyone who is not currently in a position to perform the contract, or who has previously failed to perform similar contracts properly, or in a timely manner. LACERA reserves the right to reject, in whole or in part, any and all proposals received; to waive minor irregularities; to negotiate in any manner necessary to best serve the public interest, and to make a whole award, multiple awards, a partial award, or no award. LACERA reserves the right to award a contract, if at all, to the firm which will provide the best match to the requirements of the RFP and the investment management services needs of LACERA, which may not be the proposal offering the lowest fees. Publication of this RFP does not limit LACERA’s right to negotiate for the services described in this RFP. If deemed by LACERA to be in its best interests, LACERA may negotiate for the services described in this RFP with a party that did not submit a proposal. Page 5 of 26
  6. 6. LOS ANGELES COUNTY EMPLOYEES RETIREMENT ASSOCIATION PLACEMENT AGENT POLICY Investment managers in both the public and private markets use placement agents to help them raise capital. The purpose of this Policy is to bring transparency to placement agent activity in connection with LACERA’s investments and to help ensure that all investment decisions are made solely on their merits and in a manner consistent with the fiduciary duties of LACERA’s Board of Investments (the “Board”). Prior to LACERA investing with any External Manager1, Investment Staff shall obtain a written representation from the External Manager, in a form acceptable to the Legal Office, stating that the External Manager has not used a Placement Agent2 in connection with LACERA’s investment, or if the External Manager has used a Placement Agent, it will disclose the following in writing, on a form prepared by Staff: • The name of the Placement Agent and the relationship between the External Manager and the Placement Agent • A resume for each officer, partner, or principal of the Placement Agent detailing the person’s education, professional designations, regulatory licenses, and investment and work experience • A description of any and all compensation of any kind provided, or agreed to be provided, to the Placement Agent • A description of the services to be performed by the Placement Agent • Representation that the fee is the sole obligation of the External Manager and not of LACERA, the investment vehicle, or any investor(s) in the investment vehicle • The name(s) of current or former LACERA board members, employees, or consultants or member(s) of the immediate family of any such person that are either employed or receiving compensation of any kind provided, or agreed to be provided, directly or indirectly from the Placement Agent. • The name(s) of any current or former LACERA Board members, employees, or consultants who suggested the retention of the Placement Agent • A statement whether the Placement Agent, or any of its affiliates, are registered with the Securities and Exchange Commission or the Financial Industry Regulatory Association or any similar state regulatory agency, or any similar regulatory agency in a country other than the United States, and the details of that registration or explanation as to why no registration is required • A statement whether the Placement Agent, or any of its affiliates, is registered (or is required to be registered as of a date certain) as a lobbyist with any state or national government 1 “External Manager” means an asset management firm that is seeking to be, or has been, retained by a public retirement system in California to manage a portfolio of assets, including securities, for a fee. 2 “Placement Agent” means any person or entity hired, engaged, or retained by, or acting on behalf of, an External Manager (other than a bona fide employee of the External Manager working solely for the External Manager), or on behalf of another placement agent, as a finder, solicitor, marketer, consultant, broker or other intermediary to raise money or investment from, or to obtain access to, a public retirement system in California, directly or indirectly, including, without limitation, through an investment vehicle. Page 6 of 26
  7. 7. Any External Manager or Placement Agent that violates the Policy shall not solicit new investments from LACERA for five years after the violation was committed. However, this prohibition may be reduced by a majority vote of the Board at a public session upon a showing of good cause. LACERA shall not enter into any agreement with an External Manager that does not agree in writing to comply with the Policy. In the event a Placement Agent is expected to receive compensation of any kind in connection with LACERA’s investment with the External Manager, the Investment Office will notify the Board in the memorandum discussing the recommended/approved investment. If an External Manager breaches this Policy, Staff will notify the Board in a timely manner. You must complete and return the attached Placement Agent Disclosure Form as part of your proposal. Page 7 of 26
  8. 8. LOS ANGELES COUNTY EMPLOYEES RETIREMENT ASSOCIATION PLACEMENT AGENT DISCLOSURE FORM The Board of Investments (“Board”) of the Los Angeles County Employees Retirement Association (“LACERA”) has adopted a Placement Agent Policy (“Policy”). Under the Policy, each External Manager3 must complete and deliver this Disclosure Form to LACERA prior to LACERA investing any money with that manager. For purposes of this disclosure, “you” means the External Manager identified below and its affiliates, including the External Manager’s and affiliates’ respective officers, directors, partners, members, employees, contractors, and agents. Name of External Manager: _______________________________________________ Contact information for External Manager: Address: _____________________________ _____________________________ _____________________________ _____________________________ Contact Person: _____________________________ Contact Information: _____________________________ (email/phone/fax) _____________________________ _____________________________ Purpose of contact (the “Proposed Investment”) with LACERA (check and complete as appropriate): _____ Response to RFP (describe which RFP in the space provided, next page) _____ Response to RFI (describe which RFI in the space provided, next page) _____ Emerging Manager Program _____ Private Equity / Other Commingled Fund (identify the fund in the space provided, next page) _____ Unsolicited Contact (describe the purpose of the contact in the space provided, next page) _____ Other (describe in the space provided, next page) _____________________________________________________________________________________ ____________________________________________________________________________________. 3 “External Manager” means an asset management firm that is seeking to be, or has been, retained by a public retirement system in California to manage a portfolio of assets, including securities, for a fee. Page 8 of 26
  9. 9. 1. Have you used a Placement Agent4 in connection with managing or seeking to manage assets for LACERA in connection with the Proposed Investment? Yes _______ No________ If “Yes”, complete the remainder of the Disclosure Form. If “No”, skip the remaining items and sign on page 5. 2. The name of the Placement Agent used is: _____________________________________________________________________________________ ____________________________________________________________________________________. 3. Please describe the relationship between you and the Placement Agent. ___________________________________________________________________________________ __________________________________________________________________________________. 4. Please attach a resume for each officer, partner, or principal of the Placement Agent detailing the person’s education, professional designations, regulatory licenses, and investment and work experience. Please identify below all persons whose resumes are attached. _____________________________________________________________________________________ ____________________________________________________________________________________. 5. Please describe any and all compensation5 of any kind provided, or agreed to be provided, to the Placement Agent or to a third party at the behest of the Placement Agent, in connection with the Placement Agent’s work for the External Manager on the Proposed Investment. _____________________________________________________________________________________ ____________________________________________________________________________________. 6. Please describe in detail the services to be performed by the Placement Agent in connection with the Proposed Investment. _____________________________________________________________________________________ ____________________________________________________________________________________. 4 4 “Placement Agent” means any person or entity hired, engaged, or retained by, or acting on behalf of, an External Manager (other than a bona fide employee of the External Manager working solely for the External Manager), or on behalf of another placement agent, as a finder, solicitor, marketer, consultant, broker or other intermediary to raise money or investment from, or to obtain access to, a public retirement system in California, directly or indirectly, including, without limitation, through an investment vehicle. 5 “Compensation” means remuneration and other benefits (including without limitation, favors). Page 9 of 26
  10. 10. 7. a. Is External Manager solely responsible for payment of the Placement Agent’s fee, or providing the compensation if not a monetary fee? Yes _________ No ________ If “No”, explain: _____________________________________________________________________________________ ____________________________________________________________________________________. b. Will any part of the fee or other compensation be paid or provided directly or indirectly by LACERA, the investment vehicle, or any investor(s) in the investment vehicle? Yes _________ No ________ If “Yes”, explain: _____________________________________________________________________________________ ____________________________________________________________________________________. 8. Please list the name(s) of all current and former LACERA board members, employees, and consultants and member(s) of the immediate family of any such person that are either employed or receiving compensation of any kind provided, or agreed to be provided, directly or indirectly from the Placement Agent in connection with the Proposed Investment. If none, enter “none” below. _____________________________________________________________________________________ ____________________________________________________________________________________. 9. Please list the name(s) of any current or former LACERA Board members, employees, and consultants who suggested the retention of the Placement Agent in connection with the Proposed Investment. If none, enter “none” below. _____________________________________________________________________________________ ____________________________________________________________________________________. 10. Please state whether the Placement Agent, or any of its affiliates, is registered with the Securities and Exchange Commission or the Financial Industry Regulatory Association or any similar state regulatory agency, or any similar regulatory agency in a country other than the United States. Please describe the details of that registration. If the Placement Agent is not registered with any regulatory agency, please provide explanation as to why no registration is required. _____________________________________________________________________________________ ____________________________________________________________________________________. 11. Please state whether the Placement Agent, or any of its affiliates, is registered (or is required to be registered as of a date certain) as a lobbyist with any state or national government. Please describe all such registrations. _____________________________________________________________________________________ ____________________________________________________________________________________. Page 10 of 26
  11. 11. Any External Manager or Placement Agent that violates the Policy shall not solicit new investments from LACERA for five years after the violation was committed. However, this prohibition may be reduced by a majority vote of the Board at a public session upon a showing of good cause. In addition, your attention is drawn to Section 7513.9 of the California Government Code relating to Placement Agents. Please note, there may be other laws relevant to Placement Agents, and you and any Placement Agent you engage with respect to managing or seeking to manage LACERA assets are strongly encouraged to consult your own legal counsel. California Government Code section 7513.9: (a) Any placement agent, prior to acting as a placement agent in connection with any potential system investment, shall disclose to the board all campaign contributions made by the placement agent to any elected member of the board during the prior 24-month period. Additionally, any subsequent campaign contribution made by the placement agent to an elected member of the board during the time the placement agent is receiving compensation in connection with a system investment shall also be disclosed. (b) Any placement agent, prior to acting as a placement agent in connection with any potential system investment, shall disclose to the board all gifts, as defined in Section 82028, given by the placement agent to any member of the board during the prior 24-month period. Additionally, any subsequent gift given by the placement agent to any member of the board during the time the placement agent is receiving compensation in connection with a system investment shall also be disclosed. This form, completed and signed by you, will be incorporated into and made a part of any contract or other agreement pursuant to which you manage assets for LACERA. By signing below, you represent and warrant that the information set forth herein, and attached hereto, is true and correct. You agree to update this information within ten days of any changes. The execution and delivery of this form has been duly authorized by all necessary action by the undersigned. Name of External Manager: __________________________ By: ________________________ Name: ________________________ Title: ________________________ Date: ________________________ Placement Agent Disclosure Form Final.doc Revised March 30, 2010 Page 11 of 26
  12. 12. REQUEST FOR PROPOSAL (RFP) INVESTMENT MANAGEMENT SERVICES - COMMODITIES CONTACT SHEET Instructions: LACERA is considering proposals for collateralized commodity strategies as outlined in this Request for Proposal. If you are proposing more than one strategy you will need to submit separate responses for each strategy. Provide your company’s name and address, and the primary RFP contact’s name, phone number, e- mail address and fax number. Provide the address of the local office that will service this account. FIRM NAME: ADDRESS: CONTACT NAME: TITLE: TELEPHONE #: FACSIMILE #: E-MAIL: Page 12 of 26
  13. 13. LOS ANGELES COUNTY EMPLOYEES RETIREMENT ASSOCIATION REQUEST FOR PROPOSAL (RFP) INVESTMENT MANAGEMENT SERVICES - COMMODITIES MINIMUM QUALIFICATIONS COMPLIANCE To be signed by an authorized person6 and returned with RFP response Respondent hereby certifies that it meets all of the following minimum qualifications: __________________ Yes/No 1) As of March 31, 2010, the investment firm must have a minimum of $750 million of assets under management in dedicated commodities strategies; 2) The manager’s commodities product must have at minimum a five-year performance history as of March 31, 2010; 3) The product must have generated a minimum excess return (net-of-fees) of 25 basis points over the five-year period ending March 2010. Excess returns are calculated versus either the Dow Jones UBS Commodity Index (DJ-UBS) or the S&P GSCI Commodity Index, whichever is the stated benchmark. If neither is the stated benchmark, utilize which of the two is more appropriate to the strategy in determining the excess return; and 4) The submitted product must be offered in a separate account or commingled fund structure. Funds that have barriers to liquidity and transparency, such as lock up periods or other non-traditional public market structures, will not be considered. Additionally, LACERA's Investment Policy Statement requires that its Investment Managers be SEC-registered Investment Advisors under the 1940 Act unless the manager is exempt from registration due to its status as a bank or insurance company. LACERA requires that the firm must conform to the CFA Institute’s Global Investment Performance Standards (GIPS) for performance reporting. Name Title Signature Date 6 Your signature indicates your authority to act on your firm’s behalf, and that all of the information your firm has provided in response to this RFP is true and correct to the best of your knowledge. Failure to disclose accurate information may result in immediate disqualification from the evaluation process. Page 13 of 26
  14. 14. QUESTIONNAIRE A. ORGANIZATION 1. Indicate your firm’s fiduciary classifications:  Bank  Insurance Company  Registered Investment Adviser (Investment Advisers Act of 1940)  Affiliate of Fiduciary  Other: 2. Is your firm willing to act as a fiduciary in the management of LACERA's assets? 3. Is your firm registered with the Commodity Futures Trading Commission (CFTC) as a Yes No   Commodity Trading Advisor (CTA)   Commodity Pool Operator (CPO)   Futures Commission Merchant (FCM)   Other: _______________________ 4. Provide a brief history of your firm including: a) The year organized/founded. b) Any material developments for the firm within the past three years (changes in ownership, personnel, business, etc.). c) The year the firm began managing commodities accounts for U.S. tax-exempt clients. d) The year the proposed commodities product (hereafter known as Subject Product [S.P.]) was introduced. e) If applicable, the month and year of SEC 1940 Act registration. 5. Describe the nature of your firm’s ownership structure, including specific details with regard to any affiliated companies, joint ventures, and/or employees. Provide an organization chart. 6. If an affiliate, designate percent of parent firm’s total revenue generated by your organization. 7. If the firm is a joint venture partner, identify the percentage ownership and revenues recognized by each partner to the combined association. 8. Specify the % ownership by key employees. 9. Provide an organizational chart which diagrams the interrelationships between the professional staff as well as any parent-subsidiary, affiliate, or joint venture entities. Clearly provide the communication lines for the commodities team. 10. Discuss the financial condition of the firm based on the most recent audited financial statements and annual report. Page 14 of 26
  15. 15. 11. Provide the location and function of each of your firm’s offices as follows: Headquarters or Location Function Number of Regional Office Professionals 12. Discuss the overall business objectives of your firm with respect to plans for expansion, particularly as they relate to accepting new client business. Comment on any present or planned areas of emphasis over the near future. Be sure to include the following information for all products in your response (including the S.P.): a) Total number of separate accounts that will be accepted. b) Total assets that will be accepted. For the S.P. size limitation, how did you arrive at stated limit? Are companion retail mutual funds assets included in the limit? If so, describe. c) What steps would be taken as assets under management approach the capacity level? d) At what point will you hire additional staff. 13. In the last five years has your firm been the subject of an SEC audit or any investigation by a federal or state governmental agency? If yes, explain and provide current status. 14. Over the past five years, has your organization, affiliates, parent company, officers, or principals been involved in litigation or legal proceedings? If yes, please explain. 15. Provide a summary of your firm’s internal control structure. Does the firm conduct a periodic risk assessment? Provide a copy of your firm’s SAS 70 if available, or other internal control review documentation. 16. Describe the levels (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. 17. For the S.P., indicate whether your current investment capabilities were developed in-house or through the acquisition of another investment firm. If the latter, specify the name of the acquired firm and date when this acquisition occurred. 18. What is the approximate percent of total firm revenue generated by the S.P. and what is the approximate percent of commodities product revenue generated by the S.P.? 19. Describe your firm’s overall business strengths, weaknesses, and uniqueness. 20. Has your firm adopted a Code of Ethics? If so, provide a copy. If not, why not? 21. Does your firm have a personal trading policy for employees? If so, provide a copy. 22. Describe any potential conflicts of interest your firm may have in the management of this account. Include any activities of affiliated or parent organizations, brokerage activities, investment banking activities or any past or current relationships of any kind with LACERA Board members. Page 15 of 26
  16. 16. Include any other pertinent activities, actions, or relationships not specifically outlined in this question. 23. Describe your disaster recovery and business resumption plans. 24. Provide a copy of your firm’s most recent audited financial statements and auditor’s management letter. 25. Provide a complete Form ADV (Parts I and II). B. ASSETS UNDER MANAGEMENT 26. Asset Breakdown and History (show data as $ millions) 03/31 12/31 12/31 12/31 12/31 12/31 2010 2009 2008 2007 2006 2005 Total assets under management (firm-wide, all products) Total discretionary assets for U.S. tax-exempt clients (firm- wide, all products) Total fixed income assets under management Total equity assets under management Total commodities assets under management Assets under management in the S.P. Total Assets By Strategy Indexed Active Hedge Funds Other Page 16 of 26
  17. 17. 27. What is the minimum and maximum account size your firm will accept for a separately managed account in the S.P.? 28. List your firm’s five (5) largest clients (regardless of product) by type and size (please follow format shown below). Type of Client Size Type of Mandate (in millions) Corporate Pension $50 International Equity Foundation $80 Core Bond 29. List your 5 largest clients in the S.P. by type and size (please follow format shown below). Type of Client Date of Inception Size (in millions) Foundation $75 Public Fund $100 30. List all commodities clients (regardless of product) that your firm has gained and lost within the past five years. Include a reason for all accounts lost during this period (please follow format shown below). Clients Gained Assets Date (in Type of Client Assignment Benchmark millions) 8/1/08 Endowment $50 Commodity Index DJ UBS Index 9/1/09 Public Pension $60 Commodity Active S&P GSCI Index Total $110 Number of Clients Gained 2 Page 17 of 26
  18. 18. Clients Lost Assets Reason for (in Benchmark Date Type of Client Assignment Departure millions) 3/1/08 Corporate $20 Commodity Index DJ UBS Professional Pension Index Turnover 5/1/09 Public Pension $30 Commodity Active S&P GSCI Portfolio Index Restructuring Total $50 Number of Clients Lost 2 31. Provide the client name, contact, title, and telephone number of three clients, which have terminated your firm’s services for the S.P. in the last three years. If there have been no terminations, please use terminations of other products (identify assignment in table below). Client Name Contact Title Phone Number Assignment 32. Has your firm added any new products during the past year? Do you plan to introduce any new products over the next year? If so, please elaborate. C. PROFESSIONAL STAFF 33. List the number of persons dedicated to the S.P. (Please distinguish among employees who work in different offices by using additional columns): 3/31/10 12/31/08 12/31/07 Management/Administration Portfolio Managers Traders Research Analysts Economists Strategists Operations Marketing Client Service Other (Specify) TOTAL: Page 18 of 26
  19. 19. 34. Provide the information below for each person involved with the S.P. Highlight the person(s) who would be responsible for this account. Total Years Years of with Education/ Other Name Title Responsibilities Experience Firm School Designation 35. When did the person or group responsible for managing the S.P. assume their responsibilities? 36. For each portfolio manager, please specify their location, the number of accounts each manages and include the dollar value of assets under management. 37. Provide the names of all investment professionals who have resigned, terminated, or transferred/rotated to another department, within the past three (3) years (S.P. only). Provide a brief explanation for each departure. List any replacements for these vacancies. 38. Provide the location and function of each of your firm’s offices, listing the number of professionals in each office. 39. Disclose the name of the lead portfolio manager who will be assigned to this account. Does the lead portfolio manager have ultimate decision making authority and accountability for the S.P.? Does the lead portfolio manager have equity ownership in the firm? How much time does this individual allocate among portfolio management, client servicing, traveling, and administrative duties? 40. Is the assigned portfolio manager primarily responsible for the performance track record provided in Section G of this RFP? If not, please provide the names and qualifications of all key personnel associated with this track record. 41. Are the firm’s principals and key investment professionals related to this product materially invested in the product? If so, please elaborate. 42. Describe any contingent procedures in the event a key investment professional assigned to the account should leave the firm. Discuss your approach to developing the next generation of investment professionals at your firm. Have you devised a succession plan for management of the S.P.? 43. Describe the compensation and incentive program for professionals directly involved in the proposed product. Describe the percentage of compensation from: base salary, performance bonus, equity incentives, and any other sources. How has this changed over the past 5 years? Is it expected to change in the future? Page 19 of 26
  20. 20. D. INVESTMENT PHILOSOPHY AND PORTFOLIO CONSTRUCTION PROCESS Commodities Management 44. Describe your firm's investment philosophy as it relates to the S.P. a) What market anomaly or inefficiency are you trying to capture? b) Why do you believe the S.P. will be successful in the future? Provide any evidence or research which supports this belief. 45. Please describe the following: a) The portfolio construction process for the S.P. b) Your buy/sell disciplines. c) Under what circumstances would your firm deviate from its disciplines? d) Who is involved in the portfolio construction process? e) What fundamental or quantitative model do you use in your investment process? c) Who developed and maintains the model(s)? d) How do you measure their effectiveness? 46. Discuss the various types of risk inherent in the proposed product. How are those risks measured, managed, and monitored? What risk limits are imposed? 47. Describe your firm’s expertise with derivatives in general. a) List the types of derivative instruments used in the proposed product. b) Describe your objectives, policies, and practices regarding the use of derivatives. b) What do the aforementioned derivatives accomplish for the strategy? c) How and when are they implemented in the portfolio? d) What maturities are typically used? e) What types of risks do these derivatives entail, and what procedures does your firm have in place to mitigate those risks? 48. What is the benchmark for your proposed product? Do you offer commodities products benchmarked to other indices? If so, please list. 49. What is the proposed product’s expected alpha relative to its benchmark? a) Please identify and quantify the sources of alpha b) If alpha is split between commodity and collateral, identify what percentage of alpha is derived from each. 50. Have there been any material developments for the S.P. within the past three years? 51. Does the strategy employ leverage? If so, please discuss. 52. Does the strategy employ short selling? If so, please discuss. 53. How important a consideration is tracking error in your portfolio construction? How is tracking error managed? What is the proposed product’s expected tracking error and what are the sources of that tracking error? 54. In what market environments would your strategy outperform or underperform? What is the potential downside return (relative to the benchmark) in an adverse environment? Page 20 of 26
  21. 21. 55. Discuss how your process varies when commodities are in backwardation versus contago. 56. What constraints do you place on individual commodities and sectors relative to the benchmark? What trading/rebalancing strategies are employed to maintain desired weights of commodity sectors? 57. Provide the S.P.’s allocation by commodity/sector as of dates listed below. (Please follow the format shown below.) By Sectors 3/31/10 12/31/09 12/31/08 12/31/07 12/31/06 Agriculture Energy Industrial Metals Livestock Precious Metals Foods & Fibers Cash and Equivalents Other (please specify) 58. What unique attributes does your firm, or the S.P., have that distinguish it from the competition? Who do you consider to be your major competitors for the S.P.? 59. How long would it take to for your firm to fully invest a $250 million portfolio in the S.P.? 60. What monitoring tools are used to verify the strategy’s adherence to its investment style and process? 61. Over the past 2 years, have you made any significant enhancements to your decision making process and/or risk controls? Please elaborate. 62. In your opinion, what are the key challenges facing commodity investors over the next three (3) to five (5) years? 63. How will the regulatory changes currently under consideration affect your process/portfolio? Collateral Management 64. What is your firm’s collateral management philosophy? How does that relate to the S.P.? 65. Who manages the collateral portfolio? What benchmark is used for the collateral segment of the S.P.? 66. How do you monitor the credit quality of holdings in the portfolio? How do you anticipate upgrades/downgrades of your holdings? How do you monitor new information on issues held? Page 21 of 26
  22. 22. 67. Provide the portfolio distribution information for the S.P. as of dates listed below. Since 2005, have you had any defaults in your collateral portfolio? If yes, please describe. (Please follow the format shown below.) Characteristics 3/31/10 12/31/09 12/31/08 12/31/07 12/31/06 Duration Average Yield Average Maturity Average Quality Sector Distribution 3/31/10 12/31/09 12/31/08 12/31/07 12/31/06 (e.g., TSY/Corp/ABS/MBS, etc.) Quality Rating 3/31/10 12/31/09 12/31/08 12/31/07 12/31/06 (e.g., AAA/AA/A, etc.) E. RESEARCH 68. Describe your research capabilities in detail as it pertains to commodities and collateral. What are the internal and external sources of information used? What percentage of the research effort is conducted internally? Is the research conducted by portfolio managers and traders, or do you have dedicated research personnel? 69. How are research assignments distributed? 70. How is research incorporated in the portfolio construction process? 71. Discuss the major responsibilities and sectors covered by research analysts. How are research assignments distributed to the analysts? How does their input fit in the investment process of your proposed product? How many securities are followed but not owned? 72. Provide any commentary you feel communicates the uniqueness of your firm’s research efforts. Page 22 of 26
  23. 23. F. TRADING AND OPERATIONS 73. What is your firm’s trading philosophy and capabilities related to the S.P.? Describe the allocation objectives and implementation procedures across all accounts. Include a description of all systems used. 74. Describe your firm’s risk control procedures pertaining to trading. a) What is the procedure for trade authorizations? b) Describe your firm’s procedures for ensuring pre- and post-trade guideline compliance. 75. Describe the systems and procedures used to: settle trades, monitor trades relative to guidelines, and reconcile accounts with the custodian. 76. What is the trade allocation process between commingled and separate accounts? What is the trade allocation process between separate accounts? Please describe both the tactic of allocating the initial trade as well as the strategy of building positions across accounts. 77. Describe how transaction costs for the S.P. are measured and monitored. How does your firm manage the trade-off between minimizing transaction costs while obtaining timely execution? 78. Please describe the trade order flow from beginning to end. i.e., from when an order is created by the portfolio manager to trade execution, booking, confirmation, and settlement. Include information on the systems used. 79. What was the average basis point cost on trades executed over the past 12 months for the S.P.? Do you expect these costs will be materially different in the next 12 months? 80. What pricing service do you employ to value the S.P.? What is your policy for pricing illiquid, non-tradeable issues? When you find pricing differences, what is your procedure for reconciliation? 81. Over the past year, what areas of your firm did you allocate the greatest amount of resources (i.e., Technology, Analytics, Research, Compliance, etc.)? Why? 82. Please provide a list of the firms you traded with over the past year in the proposed product. How were they selected and monitored? 83. What percentage of your firm’s actual dollar volume of commodities trades was executed with each broker/dealer listed above? Does your firm have guidelines/restrictions regarding trading counterparties? 84. What are your policies for managing counterparty risk? How are counterparties selected and monitored? Please be sure to address diversification of counterparty risk and credit requirements of counterparties. 85. Describe the control process for monitoring unrealized gains and losses on over the counter derivatives. Page 23 of 26
  24. 24. G. PERFORMANCE AND RISK (No simulated results will be accepted). 86. Submit monthly and quarterly time series returns for the S.P., since inception, through March 31, 2010, in an Excel worksheet (Excel 97 or higher) on a CD-R (recordable compact disc). Include return information for respective benchmark. Please format to two decimals. 87. What is the product’s expected alpha, tracking error, and information ratio? 88. Is the performance history submitted consistent with Global Investment Performance Standards (GIPS®) of the CFA Institute? Has this performance history been certified by an independent auditor? If yes, please submit a letter from your firm’s independent certified auditor or a third party vendor attesting to the accuracy of the information provided. 89. For periods ended March 31, 2010, for the S.P., please provide the following (rounded to two decimals): Performance Periods Annualized Benchmark Return Realized (Gross of Fees) Total Return Tracking Error 1 Year 0.00% 0.00% N/A 3 Years 0.00% 0.00% 0.00% 5 Years 7 Years Inception to date (Specify inception date) 90. Provide calendar year performance on a gross-of-fees basis since 2005 for the S.P. (For 2010, provide year-to-date returns through March 31, 2010). Please specify the benchmark and provide the benchmark returns. (rounded to two decimals): 3/31/10 200 200 200 200 2005 9 8 7 6 Total Gross Return Total Net Return Benchmark Return Net Return of Portfolio in Excess of Benchmark 3/31/10 200 200 200 200 2005 9 8 7 6 Return of Collateral Only 91. For each of the periods above, please provide performance attribution and identify the positive and negative contributors to relative performance. 92. Describe how you conduct performance attribution analysis, including information on any models or tools used. 93. Provide a full description of the composite for which you are submitting performance history, including the asset size and number of accounts, and the dispersion of returns within the composite Page 24 of 26
  25. 25. for each calendar year from 2005 to March 31, 2010 (please follow format shown below). Comment year-by-year as to the cause of the return dispersion. 3/31/10 200 200 200 200 2005 9 8 7 6 High Return Low Return Difference 94. Provide a copy of investment guidelines for the S.P. for which you are submitting performance history. Include concentration limits for the collateral component. H. FEES 95. What is your standard fee schedule for the S.P.? Please list fees for commingled and separately managed accounts. 96. Does the product also have a performance-based fee structure? If so, please describe it. 97. What would be your best fee proposal for a $250 million mandate (provide for both commingled fund and separate accounts)? 98. Would your firm negotiate from the above fees? Does your firm honor “Most Favored Nations” fee quotes? I. CLIENT REFERENCES 99. Provide the firm name, address, contact name, title and phone number for three references invested in the S.P. FIRM NAME ADDRESS CONTACT TITLE PHONE Page 25 of 26
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