New Mexico State Investment Council Transition Management Review. February 28, 2017

Transcription

1 New Mexic State Investment Cuncil Transitin Management Review February 28, 2017

2 New Mexic State Investment Cuncil Summary and Overview f Transitin Management Prgram

3 Transitin Management Basics What is Transitin Management? The mvement f assets frm a legacy prtfli t a target prtfli utilizing strategies designed t reduce verall risks and csts. When is Transitin Management used? Shifts in Asset Allcatin Changes in Investment Universe r Investment Style Changes in Investment Managers Fund Flws Change frm cmmingled vehicle t separate accunt What a Transitin Manager Des A transitin manager develps a strategy t mve assets frm the legacy t the target prtfli that effectively manages the risks and the csts f the transitin Specifically, the transitin manager will: Develp the apprpriate best practices implementatin strategy including in-kind transfers, internal and external crsses, agency and principal trades Prvide a detailed pre-trade cst estimate and time line f the transitin prcess and btain apprval Execute and mnitr the transitin and settlements n a real-time basis alng with the custdian, client, etc. Intervene in real time t minimize the fund s expsure t adverse market impact and pprtunity csts shuld events cause the markets t mve negatively against the transitin Prvide a detailed pst trade reprt including analysis t quantify the success f the transitin 3

4 The Risks f a Transitin Transitin risk is primarily cmpsed f three cmpnents. The jb f the transitin manager is t mitigate these risks. 1. Investment Risk: the undesired under/ver expsure t varius securities, gegraphies, r asset classes during the transitin. Utilizatin f varius hedges can reduce but nt eliminate investment risk. Optimizatin strategies such as psitin netting help reduce risk further. 2. Operatinal Risk: delays due t trade recnciliatin errrs, cmpliance failures, valuatin errrs, and system failures. Full understanding f the back-ffice prcess in the gegraphy and asset class invlved in the transitin can help minimize peratinal risk. 3. Trading Risk: negative impact n cst that ccurs by virtue f market participatin. Factrs t cnsider include crrelatin f assets being traded, psitin size relative t market liquidity, and asset vlatility. 4

5 The Csts f a Transitin Explicit and Implicit Csts Explicit Csts: Directly measurable csts incurred as a result f security transactins. Represents the mst visible, but least significant cst f a trade. Cmmissins: typically paid n a cents per share basis in the US/Canada and in a % f value (basis pints) in the glbal marketplace SEC Fees in the US Taxes/Stamp Duties in glbal markets including currency taxes Implicit Csts: Derived frm the price perfrmance achieved. Represents the least visible, but ften the mst significant csts f a trade. Cmmissins Taxes Market + Spread + Impact +/- Opprtunity Risk Explicit Csts Implicit Csts Transitin csts that are directly cntrlled r influenced by transitin manager Nt cntrlled by transitin manager, althugh timing impacts pprtunity risk 5

6 NMSIC Transitin Management Histry Recap f NMSIC Transitin Management Events ( ) Event Legacy Value Traded New Mexic SIC Transitin Management Usage - CITI Transitin Type Transitin Manager Cmmissin Revenue Expected Perfrmance Range Pst-Trade Ttal Csts Assessment 9 Events $3,082,984,128 TOTALS CITI $884,039 $12,368,008 +/- $14,215,653 $7,062,451 Within Range - N Cncerns Event Legacy Value Traded New Mexic SIC Transitin Management Usage - RUSSELL Transitin Type Transitin Manager Cmmissin Revenue Expected Perfrmance Range Pst-Trade Ttal Csts Assessment 3 Events $1,284,509,301 TOTALS RUSSELL $1,108,075 $6,411,609 +/- $4,372,925 $6,531,682 Within Range - N Cncerns Event Legacy Value Traded New Mexic SIC Transitin Management Usage - STATE STREET Transitin Type Transitin Manager Cmmissin Revenue Expected Perfrmance Range Pst-Trade Ttal Csts Assessment 4 Events $1,012,922,783 TOTALS STATE STREET $945,779 $6,691,861 +/- $5,961,781 $13,369,918 Outside 1 Standard Deviatin in Aggregate 6

7 2017 Pl Review Transitin Manager Search Criteria RVK received survey infrmatin frm 12 Transitin Manager service prviders in 2016 and believes that the fllwing selectin criteria remain relevant t NMSIC s needs: RVK ntes that prviders shuld have the capability and rganizatinal depth t prperly service a large institutinal investr like NMSIC. The firm, and/r its principals, have at least 3 years f experience transitining assets fr institutinal clients. The firm carries the apprpriate cverage fr errrs and missins and prfessinal liability insurance. The firm has successfully transitined at least $5.0 billin f public market assets ver the last twelve mnths. The firm has successfully executed at least ne transitin ver the last twelve mnths in an amunt equal t r greater than $250 millin (restated frm an asset-class specific screen) Ability t perate as a Fiduciary. Superir access t multiple executin venues (e.g. internal and external crssing netwrks, pen market trading, principal trades, ability t ffer interim prtfli management services). Organizatinal cmmitment t the transitin management space. Diverse Business Mdels Strng pre- and pst-transitin analytics and reprting. Strng back-ffice capabilities. Quality prcess, team, and technlgy. 7

8 Transitin Manager Industry Review Cmmissin Cap Prpsals US Equity RVK ntes that prviders put frward cmmissin cap prpsals in the range f cents per share dependent n traded vlumes. Citi was amng the mst cmpetitive prpsers. Taking int accunt qualitative benefits f platfrm, bserved strength and perfrmance n NMSIC Pl, designatin f CITI as US Equity TM Pl transitin manager is recmmended. 8

9 Transitin Manager Industry Review Cmmissin Cap Prpsals Nn-US Develped Market Equity RVK ntes that prviders put frward cmmissin cap prpsals in the range f basis pints dependent n traded vlumes. BlackRck was amng the mst cmpetitive prpsers. Taking int accunt qualitative benefits f platfrm and bserved strength, designatin f BLACKROCK as Nn-US Equity TM Pl transitin manager is recmmended. 9

10 Transitin Manager Industry Review Cmmissin Cap Prpsals Nn-US Emerging Market Equity RVK ntes that prviders put frward cmmissin cap prpsals in the range f basis pints dependent n traded vlumes. BlackRck was amng the mst cmpetitive prpsers. Taking int accunt qualitative benefits f platfrm and bserved strength, designatin f BLACKROCK as Nn-US Equity TM Pl transitin manager is recmmended. 10

11 RECOMMENDED NEXT STEPS Current TM Pl: Citi, State Street and Russell RVK Recmmendatin: 1. RVK recmmends retaining Citi and Russell. Will require apprval f the re-assignment f Russell given wnership changes. 2. RVK recmmends replacing State Street with BlackRck as the 3 rd TM Pl Member. 3. SIC staff will select the mst apprpriate TM frm the three-member pl prir t each transitin and will prvide a written reprt f the results f each transitin t the Cuncil. 4. The three-member TM pl will be cmprehensively reviewed at least every five (5) years, r sner depending n circumstances and ptential develpments within this industry. New TM Pl: Citi, Russell and BlackRck 11

12 Tab 3 3. Investment Matters: Reprting, Investment Perfrmance & Market Updates a. SIC Investment Perfrmance Reprting (Smith & RVK) b. Private Equity: 2016 Q3 Perfrmance Review c. Real Estate: 2016 Q3 Perfrmance Review d. Real Return: 2016 Q3 Perfrmance Review e. NM Private Equity: 2016 Q3 Perfrmance Review f. Private Equity Infrmatinal Items i Q3 NM C-Investment Fund Review ii. Natinal PE Required Reprting Items iii. NM PE Required Reprting Items