I. INTRODUCTION

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I. INTRODUCTION

  1. 1. PENSION RESERVES INVESTMENT MANAGEMENT BOARD 84 State Street, Suite 250, Boston, MA 02109 Timothy P. Cahill, Chair Michael Travaglini, Executive Director REQUEST FOR PROPOSALS ALTERNATIVE INVESTMENTS CONSULTANT Issued October 5, 2006
  2. 2. Table of Contents I. INTRODUCTION ....................................................................................................................................................4 II.BACKGROUND INFORMATION........................................................................................................................4 A. LEGAL STRUCTURE OF PRIM.............................................................................................................................4 B. PRIM’S CONSULTANTS.....................................................................................................................................5 C. GENERAL DESCRIPTION OF PRIM’S ASSETS ..........................................................................................................5 D.Tobacco Divestiture...........................................................................................................................................6 III. SCOPE OF SERVICES.........................................................................................................................................6 A.ALTERNATIVE INVESTMENT CONSULTING SERVICES ...................................................................................................6 IV. CONTRACT...........................................................................................................................................................9 V. PROPOSAL SPECIFICATIONS...........................................................................................................................9 A. PROPOSAL DEADLINE .......................................................................................................................................9 B. REQUIRED ATTACHMENTS AND ENCLOSURES .........................................................................................................10 C. PUBLIC RECORD.......................................................................................................................................10 D. WITHDRAWAL/IRREVOCABILITY OF RESPONSES....................................................................................................10 E. WAIVER/CURE OF MINOR INFORMALITIES , ERRORS AND OMISSIONS..........................................................................10 F. COMMUNICATIONS WITH PRIM.........................................................................................................................12 G. QUESTIONS RELATING TO THIS RFP....................................................................................................................12 H. INCURRING COSTS..........................................................................................................................................12 I. REJECTION OF PROPOSALS.................................................................................................................................12 A. NON-QUALIFYING PROPOSALS ..........................................................................................................................13 B. SELECTION OF FINALISTS..................................................................................................................................13 C. SELECTION OF CONSULTANTS............................................................................................................................13 VII. TENTATIVE TIME TABLE............................................................................................................................14 VIII. MINIMUM CRITERIA....................................................................................................................................14 A. MINIMUM CRITERIA: ALTERNATIVE INVESTMENT CONSULTING SERVICES ....................................................................14 IX. SELECTION CRITERIA....................................................................................................................................15 A. SELECTION CRITERIA .......................................................................................................................................15 5.PERFORMANCE AND FEES....................................................................................................................................17 X.QUESTIONNAIRE.................................................................................................................................................19 A. COMPANY BACKGROUND AND GENERAL DESCRIPTION............................................................................................20 B.ASSETS UNDER MANAGEMENT............................................................................................................................22 C.PEOPLE/ORGANIZATION .....................................................................................................................................23 D.INVESTMENT PHILOSOPHY, POLICY, AND PROCESS ...................................................................................................27 E.PERFORMANCE .................................................................................................................................................30 F. CLIENT COVERAGE AND REFERENCES ..................................................................................................................32 G.ADDITIONAL INFORMATION.................................................................................................................................33 H.EXECUTIVE SUMMARY.......................................................................................................................................33 XI. FEE PROPOSAL.................................................................................................................................................34 XII. REPRESENTATIONS AND WARRANTIES.................................................................................................35 XIII. EXHIBITS..........................................................................................................................................................36 -2-
  3. 3. -3-
  4. 4. Pension Reserves Investment Management Board REQUEST FOR PROPOSALS ALTERNATIVE INVESTMENTS CONSULTANT I. INTRODUCTION The Massachusetts Pension Reserves Investment Management (PRIM) Board is soliciting proposals from firms interested in providing alternative investments consulting services for PRIM and the Pension Reserves Investment Management Trust (PRIT) Fund, a $27 billion public pension plan managed in accordance with the provisions of the Massachusetts General Laws, Chapter 32. As of June 30, 2006, PRIM had over $6.85 billion in commitments to 212 partnerships, of which $4.7 billion had been invested. A listing of investments is attached in Exhibit A. The intent of this Request for Proposals ("RFP") is to select a firm or firms to provide consulting services to PRIM in the following substantive areas: alternative investment evaluation, planning, reporting, analysis, asset allocation, and manager/investment due diligence, investment selection and oversight (" Alternative Investment Consulting Services") specific to alternative investment managers. More detailed descriptions of these services are set forth in Section III, "SCOPE OF SERVICES". Please note that PRIM has retained the services of a real estate consultant, and this RFP is not requesting responses for real estate consulting services. Decisions will be based on the criteria set forth under the heading “SELECTION CRITERIA" in Section IX hereof. II. BACKGROUND INFORMATION A. Legal Structure of PRIM The Pension Reserves Investment Management (PRIM) Board is charged with the responsibility of investing and reinvesting the assets of the Pension Reserves Investment Trust (PRIT) Fund. The PRIT Fund is a pooled investment fund consisting of the funds of the State Employees' and Teachers' Retirement Systems as well as assets of other -4-
  5. 5. public employee retirement systems in the Commonwealth of Massachusetts (referred to as participating and purchasing systems). The PRIT Fund's primary investment objective is to accumulate assets through investment earnings and other revenue sources to meet future pension liabilities. As of July 31, 2006, the PRIT Fund had assets of approximately $42.3 billion. PRIT funds are generally invested with a longer term perspective and at higher target returns than most public retirement systems. The Fund was originally established to address the unfunded liability of the Commonwealth’s pension system. Exhibit B includes a copy of the Annual Report. The nine-member PRIM Board is chaired by the State Treasurer and Receiver-General of the Commonwealth. The Governor or his designee is also a member of the Board. Other members include appointees of both the Governor and Treasurer, and four representatives of state employees and teachers. All members serve without compensation. The Board oversees the Fund under the terms of its Operating Trust dated July 15, 1988 and most recently amended on September 22, 1998. The members of the Board, in conjunction with the Executive Director, who serves at the pleasure of the Board, determine policies and make decisions concerning the administrative and investment operations of the Fund. The PRIM Board has established advisory committees -- Investment, Administrative/Audit, and Real Estate -- to provide a broad range of advice to the Board. These committees are generally comprised of two or three Board members and private citizens from the investment or business community. PRIM's consultants deal primarily with the staff, Investment Committee, and Board. All policies and investments are ultimately approved by the Board. B. PRIM’s Consultants. Outside consultants are engaged for their particular expertise and retained to assist the Board and its staff in the areas of General Portfolio Strategy and Investments, Real Estate and Private Markets. Cliffwater is PRIM's current general consultant, Pathway Capital is the current general alternative investment consultant, and The Townsend Group and Morris & Morse provide real estate consulting services. KPMG is the Fund’s auditor. In addition, Deloitte & Touche is the Real Estate auditor. Mellon Trust is the Fund's custodian and is responsible for providing record-keeping and analytic performance valuations for the Fund. C. General Description of PRIM’s Assets. All of the PRIT Fund’s assets are managed by outside investment management firms; no assets are managed internally. Exhibit C includes a description of PRIM’s asset allocation and a list of all of PRIM’s investment advisors. This information is dated as of July 31, 2006. -5-
  6. 6. D. Tobacco Divestiture On October 7, 1997, the Massachusetts Legislature enacted legislation, H 3905, that forbids the PRIT Fund from purchasing securities “of any company that derives more than 15 per cent of its revenues from the sale of tobacco products”. The legislation also required the PRIT Fund to divest itself of all such securities within three years; this divestment was largely completed before the end of 1997. III. SCOPE OF SERVICES. Under the direction of the PRIM Board, the Investment Committee and PRIM staff, the consultant or consultants will provide the following services: A. Alternative Investment Consulting Services. 1. Alternative Investment Asset Allocation Strategy. Work with the staff and the General Consultant to develop (and present to the Investment Committee and the PRIM Board) a long-term Alternative Investment Allocation Strategy that is consistent with and integrated into the PRIM Asset Allocation plan. 2. Alternative Investment Tactical Plan. Develop an annual plan to implement the Alternative Investment Allocation, including: (a) Sub-Asset Class Identification: the identification of appropriate sub-asset classes for investment by PRIM. (b) Sub-Asset Class Analysis: the analysis and prioritization of each sub-asset class by investment factors such as prospective levels of risk and return, economic growth, pricing, presence of competing capital, regulatory and technological changes, status of exit routes, and other key investment factors. (a) Manager Attributes: based on the investment outlook for each sub-asset class, identification of preferred capabilities and characteristics for managers within that class. 3. Investment Search and Selection PRIM recognizes the efficiency and cost-savings of due diligence efforts that are conducted for a number of clients. However, applicants should be aware that PRIM places a high value on sourcing, analyzing, and recommending investment opportunities that meet with PRIM's particular needs. (a) Investment Screening: development of a structured process that will analyze the full universe of available investments, and efficiently identify those most appropriate for -6-
  7. 7. PRIM investment. This will include detailed analysis of prospective investments identified by PRIM. (b) Identify New Opportunities: development of a proactive program to identify new or limited access investments and to make them available to PRIM. (c) Providing a Database: providing access to a database of alternative investments and managers, including their philosophies, organizations, performance and clients. Manager information should be available for a wide range of alternative investment managers including, but not limited to domestic and international buyouts, domestic and international venture capital, distressed debt, private placements, and venture leasing; managers with related strategies; as well as small and emerging and minority/woman/disabled veteran owned managers. (b) Methodology: working with the PRIM staff to develop a due diligence methodology for analyzing prospective investments to the highest fiduciary standards. This will include independent analysis of performance data. (c) Conducting Due Diligence: to apply the due diligence to those prospective investments that PRIM selects for consideration. It is estimated that there will be 12 to 24 such investments analyzed each year. (d) Recommendations: the presentation of recommendations to the PRIM staff, Investment Committee, and Board. This will include substantive written recommendations that will present the full results of the due diligence, strategic considerations, and fit with the PRIM portfolio. (e) Primarily Responsible for Negotiation of Terms and Conditions: working with the PRIM staff and counsel in the negotiation of contract terms and conditions. 4. Proactive Monitoring of the Alternative Investment Portfolio. As of June 30, 2006, PRIM had over $6.85 billion in commitments to 212 partnerships, of which $4.7 billion had been invested. A listing of investments is attached in Exhibit A. Beyond the maintenance of a database, the Alternative Investment Consultant will be responsible for maintaining a proactive program of overseeing PRIM investments. This will include but not be limited to: (a) General Monitoring: the Consultant will take responsibility for the timely reporting of key events that may affect the portfolio's value. This can include market changes, changes in management, or substantial reductions in portfolio value. This will be conducted through the monitoring of the media, personal contacts, and systematic review of Managers' reports. -7-
  8. 8. (b) Involvement with Managers: where necessary, assisting in actions to protect the interests of PRIM as an investor, and to ensure compliance by Managers with the terms of their contracts. (c) Partnership Monitoring: assisting PRIM staff in attending partnership annual meetings, and, where appropriate, serving, on partnership advisory boards. (d) Review and recommend course of action on all partnership amendments. 5. Portfolio Analysis. (a) Annual Review: on an annual basis, a full review of the portfolio. This will include a performance review, projection of future returns, and a qualitative assessment of each individual partnership, all asset classes, and the portfolio as a whole. This will also include an assessment of compliance with the Alternative Investment Strategy, and recommendations for future investments consistent with the objectives of the fund. (b) Quarterly Performance Review: this will include measurement against benchmarks, and other comparable portfolios and significant events during the quarter. (c) Monthly Cash Flow Review: a review of cash flows, valuation and portfolio developments for custodian records. 6. Database. The Consultant will develop and maintain a database that will, at minimum, include the following information: (a) Historical Data: all historical information on cash flows, net asset values, unfunded commitments by partnership fee payments, cost basis, and return on each investment. (b) Performance Data: including IRR and time weighted return calculations and measures against performance benchmarks. (c) Classification Capabilities: an ability to review cash flows and performance data by individual investment, asset class and the portfolio over quarterly periods. This will include providing PRIM with advice on appropriate benchmarks, investment guidelines and fee calculations. 7. Special Projects and Services. PRIM may require the Consultant’s assistance, advice, research and analysis in other matters that fall outside of the routine Investment and Monitoring Programs. -8-
  9. 9. 8. Attendance at PRIM Board and Investment Committee Meetings. Attend regular meetings of the PRIM Board and the Investment Committee in Boston, Massachusetts. On average there are six meetings of each annually. 9. General Research and Analysis. Upon request of the staff, provide ongoing research, analysis and advice on specific investment related issues. In addition, the consultant will be asked to perform such other duties or activities as may be required provided they are consistent with the foregoing. 10. Education. Update the Board and Staff regularly on industry trends. IV. CONTRACT. PRIM will enter into a three year consulting agreement(s) in the form attached to this RFP as Exhibit D (the "Contract"), which provides that, among other things, a consultant to PRIM will act as a fiduciary. Each firm responding to this RFP shall be required to state under the Warranties set forth in Section XII hereof that it will agree to and execute a contract in the form set forth in Exhibit D. V. PROPOSAL SPECIFICATIONS A. Proposal Deadline The completed proposal, which must include all attachments, must be delivered electronically via e-mail to wsmith@mapension.com by 3:00 p.m. EDT on Wednesday, November 1, 2006. Any proposal submitted after this deadline will not be accepted or considered. In addition, an original and five (5) copies of the Proposal (one copy must be unbound and ready to photocopy) are to be sent to the attention of: Mr. Wayne D. Smith, CFA Senior Investment Officer, Alternative Investments Pension Reserves Investment Management Board 84 State Street, Suite 250 Boston, MA 02109 Copies of this RFP can be obtained electronically through the PRIM Board website at www.mapension.com . The questions and/or requests made in this RFP should be duplicated in their entirety in the Proposal with each question and/or request repeated before the answer or response. -9-
  10. 10. B. Required Attachments and Enclosures In addition to the responses to the RFP questions, the following information will be attached to the firm’s response. 1. Cover Letter - The Proposal should include an original and five (5) copies (one unbound) of a cover letter and one copy sent via e-mail, which will be considered an integral part of the Proposal, and which shall be signed by at least one individual who is authorized to bind the firm contractually. This cover letter must include: (a) the firm name, address and telephone/fax numbers; (b) the primary client contact; (c) the title or position which the signer of the cover letter holds in the firm; and (d) a statement to the effect that the Proposal is a firm and irrevocable offer of the firm. 2. Representations and Warranties - The Warranties contained in Section XII hereof, signed by an authorized officer of the firm, must be included as an attachment to the cover letter referenced in (1) above. 3. Disclosure Statement - Attached to this RFP as Exhibit E are two Disclosure Statements that each firm submitting a Proposal must complete and submit as an attachment to the cover letter referenced in (1) above. 4. Fee Proposal - The original and five (5) copies of the fee proposals (one copy must be unbound and ready to photocopy) of the proposing firm, on the forms contained in Section XI hereof (the "Fee Proposals") must be placed in separate, sealed envelopes, clearly identified on the outside as "Fee Proposal submitted by [COMPANY NAME]." 5. Any other material must be submitted separate from the response. C. Public Record In accordance with Chapter 4, Section 7(26)(h) of the Massachusetts General Laws, upon the expiration of the Proposal Deadline, all Proposals shall be deemed a public record and shall be subject to requests for public disclosure. D. Withdrawal/Irrevocability of Responses A proposer may withdraw and resubmit a Proposal prior to the Proposal Deadline. No withdrawals or re-submissions will be allowed after the Proposal Deadline. E. Waiver/Cure of Minor Informalities, Errors and Omissions PRIM reserves the right to waive or permit cure of minor informalities, errors or - 10 -
  11. 11. omissions prior to the selection of finalists, and to conduct discussions with any qualified proposers and to take any other measures with respect to this RFP in any manner necessary to serve the best interest of PRIM and its beneficiaries. - 11 -
  12. 12. F. Communications with PRIM PRIM’s Procurement Officer for this RFP is: Mr. Wayne D. Smith, CFA Senior Investment Officer, Alternative Investments Pension Reserves Investment Management Board 84 State Street, Suite 250 Boston, MA 02109 Telephone: (617) 946-8428 Facsimile: (617) 946-8472 wsmith@mapension.com As of October 5, 2006, firms which intend to submit a Proposal should not contact any PRIM staff, members of the Investment Committee, members of the PRIM Board, or employees of the Massachusetts Treasury, other than the Procurement Officer. An exception to this rule applies to firms which currently do business with PRIM, such as PRIM’s current general consultant or alternative investments consultant, but any contact made by such firms with persons other than the Procurement Officer should be limited to that business, and should not relate to this RFP. In addition, such firms should not discuss this RFP with any employee of PRIM’s custodian, outside managers, real estate consultant, or PRIM’s legal counsel or other advisors. FAILURE TO OBSERVE THIS RULE IS GROUND FOR DISQUALIFICATION. G. Questions Relating to this RFP All questions concerning this RFP must be received by the Procurement Officer by 3:00 p.m. EDT on Friday, October 13, 2006 (the "Question Deadline") in writing, via e- mail, or by facsimile. Questions received in accordance with this section will be answered and circulated by e-mail to all firms who have proposed a question or who request in writing a copy of the questions and the responses. Questions submitted after the Question Deadline will not be considered. H. Incurring Costs PRIM will not be liable for any costs incurred prior to entering into the Contract with the successful proposer or proposers. I. Rejection of Proposals - 12 -
  13. 13. PRIM reserves the right to reject any non-qualifying Proposal, as well as the right to reject all Proposals. VI. SELECTION PROCESS The Selection Process under this RFP will be as follows: A. Non-Qualifying Proposals PRIM will evaluate each Proposal to determine if it was submitted in accordance with the requirements set forth in this RFP, including whether the proposing firm meets the minimum criteria. All non-qualifying Proposals not subject to the waiver/ cure of minor information will be rejected at this time and the proposing firms so notified. B. Selection of Finalists The Proposals will be evaluated by a Search Committee to be formed by the PRIM Board. It is anticipated that the Search Committee shall include a member of the Investment Committee or its representative, as well as members of PRIM staff. Proposers may be invited to a due diligence interview with the Search Committee. Based on the Selection Criteria set forth in Section IX of this RFP (including the Fee Proposals), the Search Committee will select finalists for further consideration. C. Selection of Consultants The Search Committee will rank the finalists and make its recommendations for selecting a consultant or consultants to the PRIM Investment Committee and the PRIM Board. The finalist(s) selected by the Search Committee shall make an oral presentation to the Investment Committee, the PRIM Board or both. The Investment Committee may accept the recommendations of the Search Committee or, based on the Selection Criteria set forth in Section IX of this RFP, may rank the firms differently from the Search Committee and recommend another firm or firms to provide consulting services to PRIM. Final selection shall be made by the PRIM Board. - 13 -
  14. 14. VII. TENTATIVE TIME TABLE The following is the tentative time schedule for PRIM’s search for firms to provide consulting services. All dates are subject to modification by PRIM with notice. Issuance of RFP: October 5, 2006 Question Deadline: October 13, 2006 (Firm) 3:00 p.m. EDT Response Deadline: November 1, 2006 (Firm) 3:00 p.m., EDT Finalist Interviews: (Tentative) Week of November 7, 2006 Site Visits (Tentative) Week of November 13, 2006 Investment Committee Interviews: November 14th Meeting, 2006 PRIM Board Meeting: December 5th Meeting, 2006 Projected Commencement Date: January 1, 2006 VIII. MINIMUM CRITERIA A proposer must meet the following minimum criteria to be given further consideration. Failure to meet the minimum criteria will result in the Proposal's immediate rejection. A. Minimum Criteria: Alternative Investment Consulting Services. All firms submitting Proposals for Alternative Investment Consulting Services must meet the following minimum criteria: 1. The firm must be primarily responsible for providing Alternative Investment Consulting Services to existing public and/or private pension fund clients with aggregate Alternative Investment Portfolios of at least $1 billion in capital commitments. 2. The firm must maintain or have access to a database of alternative investment managers and have at least three (3) years experience in providing valuation and performance measurement and analysis services for Alternative Investments for public and/or private pension funds, - 14 -
  15. 15. 3. The firm must provide Alternative Investment Consulting Services to at least five (5) public and/or private pension funds, including at least one (1) public pension fund. 4. As of March 31, 2006, the Primary Consultant must have had at least three (3) years experience in a lead role (either as a Primary consultant or as a chief executive officer, executive director, chief investment officer or senior investment officer responsible for alternative investments of a pension fund with assets of at least $1 billion) overseeing Alternative Investment money managers in the following portfolio categories: venture capital, buyout, and distressed debt. IX. SELECTION CRITERIA PRIM will apply the following criteria in the selection of a consultant or consultants. The Search Committee will assign a rating of either "Highly Advantageous", "Advantageous", "Acceptable", "Not Advantageous" or "Unacceptable" to all qualifying Proposals in each of the categories listed below. Any Proposal receiving a rating of "Unacceptable" in any applicable category will not be considered further. Using these ratings as a guide, the Search Committee will select finalists to receive further consideration and will ultimately recommend a consultant or consultants to the Investment Committee. For a more detailed description of the Selection Process, see Section VI hereof. A. Selection Criteria 1. Company Background and General Description (a) Stability of the firm, as measured by the quality of the organizational structure of the firm; the existence of, or potential for, significant developments in the firm; the expected financial stability of the firm during the term of the Contract; and the status of the firm as a "fiduciary." (b) Experience of firm in providing alternative investments advisory/consulting services to institutional investors, as measured by the firm's history of providing such services. (c) Absence of organizational issues, such as litigation or regulatory investigations; and, absence of financial problems. (d) Resources and knowledge of the firm and Primary Consultant(s) with respect to alternative investments managers, including the quality and breadth of the firm's available database of alternative investments managers; the firm’s and the Primary Consultant’s knowledge of alternative investments managers, and supporting resources for the selection and oversight of alternative investments - 15 -
  16. 16. managers. (e) Quality and usefulness of the materials provided to PRIM under this RFP, including the work plan; and the examples of an analysis and valuation of an existing alternative investments portfolio; an analysis of a new investment; and a oversight analysis of the alternative investments asset class and/or alternative investments managers. (f) Ability and resources to keep PRIM advised of ongoing developments in the alternative investments field. (g) Ability to source and allocate quality investment opportunities, of appropriate amount and quality to meet PRIM’s allocation to alternative investments managers program. 2. Stability, Depth and Experience of Personnel (a) Experience of the firm and Primary Consultant(s) in providing Alternative Investment Consulting Services, as measured by the length of time the firm and the Primary Consultant(s) have provided such services as consultants or, in the case of the Primary Consultant(s), as chief executive officer, executive director, chief investment officer, or investment officer specializing in alternative investments of a pension fund. (b) Experience of key professionals in providing consulting services as measured by the length of time dedicated staff have provided such services to pension funds. (c) Accessibility of Primary Consultant(s), as measured by the client ratio(s) of the Primary Consultant(s); and the base office(s) of the Primary Consultant(s). (d) Depth of personnel, as measured by the firm's consultant/client and personnel/client ratios; back-up procedures for providing services to PRIM; and location of supporting personnel. (e) Stability of the firm’s professional base, as measured by personnel turnover since inception. 3. Client Relations and References (a) Stability of the firm’s client base, as measured by the number of clients gained or lost since inception. (b) Quality of references from clients as measured by responses relating to quality of consulting services; ability to anticipate issues as opposed to reacting to issues; quality of client services; and, the knowledge and accessibility of the Primary Consultant(s). - 16 -
  17. 17. (c) Quality of references from other industry sources, as measured by responses relating to the depth and expertise of investment personnel, analytical capabilities of the firm, perceived reputation and access to opportunities, and the overall quality of the firm. 4. Philosophy/Process (a) Firm’s overall investment philosophy, process, and strategy relating to alternative investments. (b) Defined philosophy and consistent process implementation, portfolio construction methodology, and implementation of risk controls relating to alternative investments managers. 5. Performance and Fees (a) The historical performance (Net IRR) of the firms investments specifically in alternative investments managers versus appropriate benchmarks. (b) Consistency of track record as measured by the performance of alternative investments managers in portfolios in which the Primary Consultant(s) is lead advisor. (c) The total cost of performing alternative investments advisory services as measured by the Fee Proposal. The Fee Proposals will be opened and analyzed by the Search Committee, and will be taken into account as a factor in its selection of finalists and in its recommendations to the Investment Committee and the PRIM Board. The Search Committee will consider the relative benefits of having a flat fee or an hourly fee with a cap. The selection of a firm or firms to act as to PRIM will not necessarily be based on which firm(s) submits the lowest Fee Proposal, as the Fee Proposal is only one of the Selection Criteria. 6. Proposer's Independence of Judgment and Freedom from Conflicts of Interest (a) The extent of a firm's reliance on revenues from sources which may have interests that conflict with PRIM, including business activities other than consulting (e.g. money management, brokerage), the existence of contractual or other - 17 -
  18. 18. relationships between the proposer and money management and brokerage firms, or the sale of data or databases to money management firms. - 18 -
  19. 19. X. QUESTIONNAIRE. FIRM NAME: _____________________________________ ADDRESS: _____________________________________ _____________________________________ CLIENT CONTACT: _____________________________________ TELEPHONE #: _____________________________________ FASCIMILE #: _____________________________________ E-MAIL ADDRESS:_____________________________________ SIGNED: _____________________________________ NAME (print): _____________________________________ TITLE: _____________________________________ DATE: _____________________________________ - 19 -
  20. 20. The following questions and requests for information are separated according to the categories set forth under "SELECTION CRITERIA" in Section IX of this RFP. For the purposes of this Questionnaire, the “subject product” refers to alternative investments. A. Company Background and General Description 1. Please provide the following information with respect to the firm: (a) a brief history of the firm, including its year of organization and the percentage owned by current active employees; a list of the owners of the firm including individuals and all other entities; (b) the location of the firm’s headquarters and branch offices; (c) if an affiliate, designate percent of parent firm’s total revenue generated by your organization; (d) if the firm is a joint venture partner, identify the percentage of ownership and revenues recognized by each partner to the combined association; and (e) please provide an organizational chart diagramming the relationships between the professional staff dedicated to alternative investments advisory services, the relationship between alternative investments advisory services and other products of the firm as well as the professional staff associated with each product and/or service, and the relationships among the parent-subsidiary, affiliate, or joint venture entities. 2. How many years has the firm been involved in alternative investments advisory services? To tax-exempt clients? To public pension fund clients? Please include the categories of services available to clients during this period. 3. Please describe the firm’s experience in analyzing and recommending the following types of alternative investments: venture capital; private equity; corporate restructuring/buyout; special situations; venture leasing; international alternative investments; and any other classification (if applicable). Please note whether this experience was as a consultant, a discretionary manager, or both. 4. Please describe the financial condition of the firm and include a copy of the firm's financial statements for the most recent annual reporting period. 5. Please describe any significant developments in the organization which have occurred since inception (changes in ownership, personnel reorganization, etc.). 6. Please describe any anticipated near term changes in the organization's basic ownership structure or any other significant changes in the organization. - 20 -
  21. 21. 7. Is the firm, its parent, or affiliate a registered investment advisor with the SEC under the Investment Advisers Act of 1940? If not, what is the fiduciary classification? Please state whether the firm is or is not a fiduciary (as the term is defined by the Employee Retirement Income Security Act of 1974 [ERISA]). Also, please state whether or not the employees comply with the Code of Ethics and Standards of Professional Conduct of the CFA Institute and the Association of Investment Management and Research (AIMR). Please provide a copy of your Code of Ethics if different from the AIMR Code of Ethics and Standards. 8. Does the firm or any affiliate serve as an investment manager for clients? 9. Does the firm or any affiliate act as a securities broker-dealer? 10. Does the firm accept soft dollars as a method of payment for services? 11. List all investment management firms from which the firm or any affiliate has received any compensation since January 1, 2000. 12. If the firm or affiliates provide investment management securities, brokerage, or services to investment managers, describe how conflicts of interest are managed, disclosed or prevented. 13. Since inception, has the firm, the Primary Consultant(s), or another officer or principal been involved in any business litigation, regulatory or other legal proceedings or government investigation involving allegations of fraud, negligence, criminal activity or breach of fiduciary duty relating to pension consulting activities? If so, please describe, provide an explanation, and indicate the current status. 14. Please describe the levels of coverage for errors and omissions insurance and any other fiduciary or professional liability insurance the firm carries. List the insurance carriers supplying the coverage. - 21 -
  22. 22. B. Assets Under Management 1. Please list assets under management ($ in millions) since 2003. Assets Under Management 12/31 12/31 12/31 3/31 ($ in millions) 2003 2004 2005 2006 (a) Total assets under management (all products) (b) Total institutional (taxable & non-taxable) alternative assets only (venture capital and buyout) (c) Total institutional assets (taxable & non-taxable) managed in the subject product (d) Total assets managed in the subject product for U.S. tax exempt clients in separate accounts (e) Total U.S. tax exempt assets in the subject product in commingled funds 2. Please list the 5 largest accounts currently managed in the subject product. Name Date of Market Value ($ in millions) Inception as of June 30, 2006 3. List all clients and asset amounts gained in alternative investments advisory services since inception. Name Date Assets Gained ($ in millions) as of June 30, 2006 - 22 -
  23. 23. 4. List all clients and asset amounts lost in alternative investments advisory services since inception. Name Date Assets Lost ($ in millions) as of June 30, 2006 5. Describe the objectives of your firm with respect to future growth in alternative investments advisory services, commenting on: (a) Additional resources for portfolio management, research, client service and tools/ models to enhance the investment process or manage growth; and, (b) Size limitations with respect to assets under management in alternative investments advisory services. How did you arrive at those asset limits? Are companion assets in this category from broader mandates included in these limits? Describe. 6. Identify all clients that have terminated accounts in the subject product over the past three years that can be contacted as references. Provide the firm name, contact person and title, phone number, product name, fund account value and reason for termination. 7. Provide the client name, address, phone number, contact name, title, and account type (e.g. defined benefit, defined contribution, endowment) of five accounts, who are invested in the subject product that can be contacted as references. Also indicate the length of your relationship and assets under management for each reference. C. People/Organization 1. How many persons are employed in alternative investments advisory services? How many people support the Primary Consultant(s). For all staff employed in alternative investments advisory services, specify the location of their base offices, state the number of accounts each manages (please indicate if they are associated with U.S. tax exempt account), and include the dollar value of assets for which they are responsible. 2. Provide a list of the professionals involved in the subject product in the manner listed below: PORTFOLIO MANAGEMENT/INVESTMENT TEAM - 23 -
  24. 24. Title/ Age Yrs Yrs @ Degrees/ Sponsoring Name Responsibilities Exp Firm Designations Body/School RESEARCH Title/ Age Yrs Yrs @ Degrees/ Sponsoring Name Responsibilities Exp Firm Designations Body/School ADMIN/FINANCE Title/ Age Yrs Yrs @ Degrees/ Sponsoring Name Responsibilities Exp Firm Designations Body/School OTHER Title/ Age Yrs Yrs @ Degrees/ Sponsoring Name Responsibilities Exp Firm Designations Body/School 3. Provide biographies of no longer than one page on each of the persons listed in Question C.2. Please include prior employment history and languages spoken. 4. Please name and include a brief resume of the person(s) you propose to be Primary Consultant(s), for PRIM. Please state which of the firm’s offices would service this account. 5. Provide an organizational chart that diagrams the different functions (research, trading, etc.) dedicated to the product area. Professionals should be identified over their areas of responsibility. 6. Describe your internal training procedures for investment professionals. 7. Describe the background of professionals directly involved in the asset class. (a) Are they brought in from the outside or promoted to their positions from within the organization? (b) Is their prior experience in portfolio management/research/trading, industry, consulting, or other business or technical areas? (c) What sort of ongoing education or professional development programs (for example, the CFA program) are encouraged or required? - 24 -
  25. 25. 8. Describe the job qualifications required by your firm when hiring investment professionals. 9. What personnel or organizational improvements are planned over the next years? 10. Describe the compensation and incentive program for professionals directly involved in the product. How are they evaluated and rewarded? What incentives are provided to attract and retain superior individuals? Is there a vesting schedule in place for any portion of the compensation package? Identify the percentage of compensation which is: i. Base salary ii.Performance bonus iii.Equity incentives iv.Carry Allocation v.Other 11. Do you offer direct ownership, phantom stock, profit sharing, and/or performance bonus? (a) Who is eligible to participate? (b) On what basis are these incentives determined – is compensation tied to success factors such as asset growth, performance, or other factors? Please list and indicate the weight of each in determining total compensation. (c) How does your compensation structure/levels compare with other firms in the industry? 12. Discuss the cause/causes and impact of any turnover (departures or hiring/promotions) of any professionals directly involved in the subject product that you have experienced in the past five years. How long has the team been together? Indicate when and why any professional dedicated to the subject product left or joined the firm in the past three years. What were/are their job responsibilities? For personnel who have left indicate job titles, years with the firm and who replaced them. JOINED Date Name/Title Responsibilities DEPARTED Yrs @ Replaced by - 25 -
  26. 26. Date Name/Title Responsibilities Firm Reason for (name/title) leaving 13. Please explain how the team dedicated to the PRIM account would function, including Primary Consultant(s), back-up, quality control, research, and support services. 14. What are the procedures for addressing PRIM’s issues when the Primary Consultant(s) or other assigned personnel are traveling or unavailable? 15. Will the Primary Consultant(s) committed to the PRIM account consult for PRIM exclusively? If not, how many client relationships will the Primary Consultant(s) have other than PRIM? What are the client/consultants and client/support personnel ratios for the firm? 16. Please provide an estimate of the percentage of the Primary Consultant’s time, as well as the time of other dedicated consultants, to the PRIM account. 17. Please list the Primary Consultant’s current clients and engagements by asset size, type of client (e.g., public fund, corporate fund, endowment) and type of engagement (e.g., general consulting services, project-based service). 18. Please describe the firm's back-up procedures in the event the key personnel assigned to PRIM should leave the firm. If applicable, give an example of a situation where this procedure has been utilized. - 26 -
  27. 27. D. Investment Philosophy, Policy, and Process 1. Why does your firm believe this is an appropriate program for a public pension plan? 2. What is you firm’s expected rate of return and risk for alternative investments over the next three, five and ten years? 3. Describe your firm’s investment philosophy for the subject product. 4. How many investment opportunities did the firm review, meet with, conduct due diligence on, and ultimately recommend throughout 2001, 2002, 2003, 2004, 2005 and 2006? Dat Offering Meetings Due Investments e Memorandum Taken Diligence Approved s Received Conducte d 200 1 200 2 200 3 200 4 200 5 200 6 5. Describe the sources and processing of information used to find alternative investments managers. a) Are you seeking unique sources of information? b) Are you applying unique methods to process the information? c) Describe your due diligence process in selecting managers, including which staff is involved in the process. d) Describe your primary method for sourcing investment opportunities. 6. Describe the firm's process for the evaluation and selection of alternative investments opportunities for PRIM. Include how the firm evaluates a manager's personnel and organization, investment philosophy, investment style(s) and products, research capabilities, financial condition, assets under management, type of clients, client - 27 -
  28. 28. service, fees, and carried interest. Relate the process to PRIM’s goals, objectives, investment policy and fiduciary responsibility. 7. Describe the firm’s experience and capabilities in analyzing and monitoring small and alternative investments managers 8. Discuss in detail the methodology of due diligence the firm employs. Also, please provide an example of your due diligence model. 9. Discuss how the firm verifies the accuracy and appropriateness of data submitted by alternative investments managers. 10. Describe your firm’s philosophy for monitoring alternative investments. 11. Please describe the firm's process for providing oversight for alternative investments managers, including, but not limited to, overseeing performance, risk, investment objective, integrity, contract compliance, account restrictions, activities creating potential conflicts of interest, and reporting requirements. a) Describe the firm’s process and sources of data for analyzing, monitoring and reporting numerical and operating performance of clients’ investment portfolios. Relate the process to a client's goals, objectives, and investment policy. b) How is portfolio risk managed and monitored? Describe all risk management functions and tools utilized. c) How do you monitor the manager’s adherence to its investment style, consistency, and process? Specify who is responsible. d) How does the firm monitor partnerships that are winding down? 12. If you have internal research capability dedicated to alternative investments services, describe the research process. a) What percentage of the research effort is conducted internally? b) Where is the research carried out? c) What are the sources of research? d) What specific research is conducted? e) What are the outputs of the research? f) How is this information incorporated in the due diligence and portfolio construction process? 13. Describe the firm’s computer capabilities and relate them to the consulting services or products. Does the firm provide any customized computer-based analytical tools to your clients? If so, please include in the description the computer language in which the programs are written. Describe the services the firm provides over the Internet that are - 28 -
  29. 29. accessible by PRIM on-line. Please include a description of PRIM account analysis and performance reporting that is available on-line. 14. Does the firm maintain or have access to a database of Alternative Investment Managers and Advisors? How many managers and advisors are contained in this database? Please separate the managers and advisers by investment types (e.g. venture capital, LBO funds, etc.). 15. Describe how the firm gathers, verifies, updates, maintains, and analyzes the data collected on alternative investments managers for the database. Describe the screening variables and capabilities of the database. Describe the firm’s capability of providing custom client reports. 16. Please provide a recent sample of a monitoring database, including one annual and one quarterly report, that depicts your standard monitoring system. Please include back up sheets portraying cash flows and formulas used in calculating performance. (PRIM recognizes that numbers may have to be disguised and names omitted.) 17. What unique attributes does your firm or your product have which distinguish it from its competitors in the fulfillment of this assignment? - 29 -
  30. 30. E. Performance 1. How does the firm evaluate the quality of its consulting services? Please describe any benchmarks the firm has developed to evaluate its performance and the performance of its Primary Consultant(s)s. 2. Please list the firm’s current clients’ commitments to venture capital, buyouts, and other, which have been recommended for the firm’s clients. Also, please provide a list of all of the limited partnerships in which the firm currently holds an advisory board seat, and the name of the consultant that holds such seat 3. Please provide the information below for the alternative investments of your five largest clients. All information should be since inception as of June 30, 2006. Use AIMR standards or, if different, indicate explicitly how they differ. Provide an explanation of the return calculations utilized. Please list the funds included in the composite and please note if the client is discretionary or non-discretionary. Performance Commitments Contribution Distribution Market Total Net Gross Discretionary ($ in millions) s s Value Value IRR IRR /Non-Discr. Client 1 Client 2 Client 3 Client 4 Client 5 TOTAL 4. Please provide net IRRs for the periods listed below for the alternative investments in the portfolios of your five largest clients. All performance should be provided gross of all fees. Use AIMR standards or, if different, indicate explicitly how they differ. Provide an explanation of the return calculations utilized. Please list the funds included in the composite. Net IRR 1 Year 3 Years 5 Years 10 Years Since Discretionary/ (%) Ended Ended Ended Ended Inception Non- 12/32/02 12/31/02 12/31/02 12/31/02 Ended Discretionary 3/31/03 Client 1 Client 2 Client 3 Client 4 Client 5 TOTAL 5. Please list all alternative investments, by vintage year, in the following format. (PRIM - 30 -
  31. 31. recognizes that partnerships names may have to be disguised.) Buyout Partnerships ($ in millions) Vintage Partnership Fund Size Committed Invested Distributed Market Total Net Year Name Value Value IRR XXXX Venture Capital Partnerships ($ in millions) Vintage Partnership Fund Size Committed Invested Distributed Market Total Net Year Name Value Value IRR XXXX Other ($ in millions) Vintage Partnership Fund Size Committed Invested Distributed Market Total Net Year Name Value Value IRR XXXX 6. Please discuss the firm's knowledge of and expertise in applying AIMR's Performance Presentation Standards. Does the firm act as a third party vendor to independently verify that managers' performance returns are accurate and were calculated according to AIMR standards? 7. Please discuss the firm’s views on appropriate benchmarks for both private equity and venture capital. Describe how benchmarks are chosen or developed for alternative investments and how performance is compared to similar portfolios. Can the firm provide customized benchmarks? Please indicate whether the firm has ever developed benchmarks for alternative investments and, if so, provide a description of the benchmark developed. What benchmarks would the firm recommend for PRIM’s Alternative Investments Program? 8. Please describe your firm’s process and capabilities in negotiating partnership terms. Describe examples where the Primary Consultant(s) negotiated fees or key terms. - 31 -
  32. 32. F. Client Coverage and References 1. Please indicate in the chart below the composition of the firm’s client base using the number, assets in alternative investments, and percentages of clients. Please explain if the firm’s client base is heavily weighted to any particular type of investor. Please indicate the number and percentage of clients that retain your firm on a discretionary vs. non-discretionary basis. Client Type Number of Discretionary Percentage of Client Base Discretionary Assets Clients ($ in millions) Public Pension Funds Corporate Pension Funds Endowments Other (Specify) TOTAL 100 % Client Type Number of Non- Non-Discretionary Percentage of Client Discretionary Assets Base Clients ($ in millions) Public Pension Funds Corporate Pension Funds Endowments Other (Specify) TOTAL 100 % 2. Please provide a current list of the 5 largest clients including name, contact, telephone number, asset values, number of years the client has retained your firm, and product or services the client uses. In addition include all of the information for your public fund clients regardless of their size. PRIM may contact any of these clients as references. 3. Please give details on the number, name(s) and asset values of any client relationships that were either terminated or not renewed in the last three years with reasons for the termination or non-renewal. 4. Please give details on the number, name(s), and asset values of any new client relationships gained since inception. 5. Explain the firm's goals and desires for expansion, particularly how such goals pertain to accepting new client business and the quality of service to all clients. Is there a limit to the number of new clients the firm will accept? At what point will the firm need to add additional staff? What is the client/consultant ratios of both the firm and the proposed - 32 -
  33. 33. Primary Consultant(s). 6. Describe how investment opportunities are allocated among clients and whether any clients or funds have preference or priority. If any clients or funds have similar or overlapping investment strategies, please indicate specifically how any allocation issues have been resolved. In addition, please indicate (i) if the firm currently reports to clients the results of the firm’s allocation process, on an annual or other periodic basis; and (ii) if the firm would be willing to provide such an allocation reports to PRIM on a periodic basis. G. Additional Information Please provide the following sample reports as exhibits to the Proposal: 1. Investment plan for alternative investments portfolio 2. Performance analysis for alternative investments portfolio 3. Manager oversight (monitoring) report for alternative investment managers 4. Client reporting (monthly, quarterly, annually) 5. Recent, representative investment recommendation/proposal 6. Fee Analysis of an alternative investment portfolio H. Executive Summary Please submit an executive summary consisting of not more than 3 one-sided pages which summarizes the contents of the Proposal with the firm’s name identified on the top of the first page. If the firm is selected for a finalist interview, this summary will be provided to the Investment Committee in advance of any interview. Please be aware that all members of the Investment Committee may not have read your complete Proposal, which will be evaluated by the Search Committee. - 33 -
  34. 34. XI. FEE PROPOSAL. As the term of the Contract shall be three (3) years, the Fee Proposal shall be guaranteed for a period of not less than three (3) years from the effective date of the Contract. The services detailed under “SCOPE OF SERVICES” in Section III of this RFP should form the basis for the proposed fees and Section III should be referred to for a detailed description of the services required of the successful proposer or proposers. PRIM reserves the right to compensate the successful proposer or proposers based on an all-in- cost flat fee or a blended hourly rate, plus the actual cost of expenses. This blended hourly rate will also be used to compensate such firms for any work performed outside the scope of the services described in Section III of this RFP. The method of payment will be set forth in the Contract. Once the consultant(s) is (are) selected, the fee may be negotiated further depending on the variance from the other Proposals. In no case will the negotiated fee be higher than the fee contained in the Proposal. All retainer based fees shall include all expenses of the proposing firm during the term of the Contract. FEE PROPOSALS MUST BE SUBMITTED IN A SEPARATE, SEALED ENVELOPE AS DESCRIBED IN SECTION V.B.4. All-Inclusive Flat Fee - Year 1 $ All-Inclusive Flat Fee - Year 2 $ All-Inclusive Flat Fee - Year 3 $ TOTAL FEES (Years 1 -3) $__________________________________ Proposers must also submit a blended hourly rate, effective for the term of the Contract, along with a maximum aggregate fee for the term of the Contract. _________________________________________________ _____________________ Name of Firm Date _________________________________________________ Authorized Signatory _________________________________________________ Name and Title - 34 -
  35. 35. XII. REPRESENTATIONS AND WARRANTIES. All proposers are required to submit an executed copy of this exhibit as an attachment to the cover letter described in Section V of the RFP: A. Proposer warrants that it meets, or will meet before the award of the Contract, the bonding requirement provided by Section 412 of the Employment Retirement Income Security Act of 1974 (ERISA) or that it carries at least an equivalent fidelity bond that will be applicable to proposer's actions under that Contract (unless exempt, and explanation of exemption is attached). B. Proposer warrants that it maintains an errors and omissions insurance policy providing a prudent amount of coverage for negligent acts or omissions and that such coverage will be applicable to proposer's actions under the Contract. C. Proposer warrants that it will not delegate its fiduciary responsibilities assumed under the Contract. D. Proposer warrants that it has completed, obtained, and performed all registrations, filings, approvals, authorizations, consents or examinations required by a government or governmental authority for acts contemplated by the Contract. E. Proposer warrants that it will agree to the provisions of the Contract which are set forth in Exhibit D to this RFP. F. Proposer warrants that it meets all of the minimum criteria applicable to the firm under this RFP as follows: [Please list each minimum requirement and specifically describe how your firm meets the applicable minimum qualifications specified in Section VIII.] _________________________________________________ _____________________ Name of Firm Date _________________________________________________ ____________________ Signature Title - 35 -
  36. 36. XIII. Exhibits - 36 -

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