Request for Proposal

Transcription

1 Request for Proposal City of Annapolis Police and Fire Retirement Plan Emerging Investment Manager PROPOSAL DEADLINE: DECEMBER 30, 2014 TIME: 5:00 PM

2 TABLE OF CONTENTS INTRODUCTION... 1 GOALS FOR UTILIZATION OF EMERGING MANAGERS.. 1 OBJECTIVE. 1 EMERGING MANAGER PROGRAM ELIGIBILITY CRITERIA... 2 MANAGER SELECTION 2 EVALUATION.. 2 EVALUATION PROCESS... 2 ATTACHMENT 1 MANAGER CERTIFICATION. 3 EMERGING INVESTMENT MANAGER EQUITY INVESTMENT PRODUCT....E-1 I. Organization History and Structure E-1 A. Ownership Structure...E-1 B. Regulatory and Insurance Issues E-2 C. Staffing... E-3 D. Assets Under Management.E-5 II. Investment Process E-7 A. Investment Philosophy and Process E-7 B. Brokerage...E-8 C. Account Characteristics E-10 D. Other Investment Related Issues E-12 E. Risk Management..E-13 EMERGING INVESTMENT MANAGER FIXED INCOME INVESTMENT PRODUCT.. F-1 I. Organization History and Structure F-1 A. Ownership Structure... F-1 B. Regulatory and Insurance Issues F-2 C. Staffing... F-3 D. Assets Under Management F-5 II. Investment Process. F-7 A. Investment Philosophy and Process F-7 B. Brokerage...F-9 C. Account Characteristics F-10 D. Other Investment Related Issues F-11 E. Risk Management.F-12

3 CITY OF ANNAPOLIS POLICE AND FIRE RETIREMENT PLAN EMERGING INVESTMENT MANAGER EQUITY INVESTMENT PRODUCT INTRODUCTION: The City of Annapolis Police and Fire Retirement Plan ( Plan ) has plan assets of $160 million as of September 30, The Plan assets are diversified across various asset classes. Details on the investment program s underlying strategies and resources can be found in the enclosed Investment Policy Statement. GOALS FOR UTILIZATION OF EMERGING MANAGERS: It is the goal of the Investment Committee ( Committee ) that, subject to its fiduciary responsibilities, the use of emerging managers shall constitute a minority in any broad asset classes in which the Plan is invested and not concentrated in any particular asset class. The Committee has adopted the following asset allocation goals for the utilization of emerging investment managers: Percent of Portfolio 0% - 10% Asset Class Percent of Asset Class Equities 5% - 10% Fixed Income 10% - 15% *Alternative investments are not subject to the goals of the Emerging Investment Manager Program. These goals will be reviewed annually by the Investment Consultant and Committee. OBJECTIVE: It is the primary goal of the Plan to develop and maintain an investment program that will help secure the retirement benefits of the beneficiaries. In order to achieve this objective, investment advisers are selected based on their long-term records of performance, depth of investment staff and consistency of approach, among other characteristics. The Committee responsible for the Plan recognizes that even large, experienced and successful investment organizations were once small, start-up firms with few assets under management. These firms are often started by experienced investment professionals who show great promise, but find it difficult to compete with large, established organizations. Smaller firms typically do not meet the minimum standards set for investment advisers by large investment programs. Consequently, they are not considered for roles in the portfolio. In order to take advantage of these emerging organizations, the Committee has adopted this Emerging Investment Manager Program to seek increased participation by emerging investment managers for the Plan. 1

4 EMERGING MANAGER PROGRAM ELIGIBILITY CRITERIA: To participate in the Program managers must meet the following minimum criteria: 1. The firm must be a Registered Investment Advisor under the Investment Advisors Act of 1940; and 2. The firm must have experience in the management of institutional portfolios operated under prudent investor standards. In addition, the firm is expected to comply with the following additional criteria, subject to final discretion of the Committee: 3. Have a minimum of $25 million in assets under management at the time of hire; 4. The firm and/or the firm s principals in former associations should have a verifiable, historical 3- year performance record for the product being offered, compliant with Global Investment Performance Standards(GIPS ), and the principals must have at least five years of related investment management experience. Or a portable performance track record associated to the specific investment strategy; or a combination of either to at least produce a three year performance record even if the Global Investment Performance Standards (GIPS ) are not met; 5. Have at least three distinctly different clients; 6. At the time of hiring and with each additional funding, the Plan should not comprise more than 25% of the capital in the manager s investment portfolio or 10% of the manager total assets under management; and 7. The manager should be willing to charge a fee no greater than those charged by the current fund managers with similar characteristics in the corresponding asset class. MANAGER SELECTION: Qualifying firms are selected based on the experience and qualifications of the firm s principals, the depth and stability of the organization, the soundness of the investment philosophy and process, and a satisfactory quantitative evaluation of the product s risk and performance records. EVALUATION: Managers in this Program will be evaluated in the same manner as those in the Plan s general investment program, and will be held to the same rigorous performance criteria. Each manager will be assigned a performance benchmark and will be evaluated on an absolute and peer relative basis. Managers participating in this Program may be terminated for any reason, including, but not limited to, poor performance, personnel changes, organizational changes, deviation from their investment style and compliance violations. EVALUATION PROCESS: All responses submitted will be evaluated in accordance with the provisions stated in this Request for Proposal. Clarifications may be requested from the Prospective Manager at any phase of the evaluation process. The purpose of the evaluation process is two-fold: (1) to assess the responses for compliance with the minimum qualifications requirements; and (2) to identify Prospective Managers that have the highest probability of successfully performing the services as described herein. The evaluation process will be conducted in a comprehensive and impartial manner. 2

5 Attachment 1 Manager Certification Emerging Investment Manager Request for Proposal Prospective Manager Firm Name: Prospective Product Name: The Prospective Manager must substantiate that the firm satisfies or will agree to meet the minimum criteria to Annapolis Plan satisfaction. This certification and the associated documentation must contain sufficient information, as prescribed to assure the Annapolis Plan of its accuracy. THE PROSPECTIVE MANAGER MUST: 1) Have and maintain the status of a registered investment advisor under the Investment Advisors Act of 1940; 2) As of the date of hire, a firm must have at least $25 million in AUM in the prospective product and/or strategy; 3) Be able to establish and manage Separate Account or Comingled Fund mandates; 4) Have at least a 3-year track record for the proposed product and/or strategy with the same Portfolio Manager as of the date of submittal, as outlined in 4 in the letter of Introduction under Emerging Manager Program Eligibility Criteria; 5) Agree to comply with Maryland law as it applies to investments made by the Plan; and 6) Agree to act as a fiduciary within the meaning of applicable Maryland law. THE PROSPECTIVE MANAGER MUST CERTIFY: 1) To the best of our knowledge, all information and representations provided are true, complete and accurate; 2) We have read the complete materials and agree to the terms and requirements upon which this Request for Proposal is conditioned; and 3) The signature affixed hereon and dated certifies compliance with all the requirements of this Request for Proposal. Yes: No: Prospective Manager Authorized Signature Printed Name Title Date 3

6 CITY OF ANNAPOLIS POLICE AND FIRE RETIREMENT PLAN ( Plan ) EMERGING INVESTMENT MANAGER - EQUITY INVESTMENT PRODUCT Please provide complete responses to the following questions as they relate to your investment style. Feel free to include any additional information or analysis beyond what is specifically requested below. Firm Name: Address: Contact Person: Name: Phone: Fax: Address: Name of Product: Benchmark for product: I. Organization History and Structure A. Ownership Structure 1. Describe your firm s current ownership structure. Also describe the extent to which your firm s investment professionals hold equity in the firm. 2. Does your firm have any affiliates and/or controlling parties? If so, please describe. 3. Have there been recent changes in your firm s ownership? Does your firm contemplate any changes in ownership within the next 12 months? 4. Please provide us with a copy of your firm s current Form ADV Part II. E-1

7 B. Regulatory and Insurance Issues 1. Is your firm a registered investment advisor under the Investment Advisors Act of 1940? 2. Does your firm satisfy the requirements of ERISA Section 3(38), and does it acknowledge fiduciary responsibility for the management of client accounts in this product? 3. Has your firm or any of its current or past investment professionals ever been the subject of any litigation; audit or a civil or criminal investigation by the SEC, IRS, DOL or other regulatory authority; sanctioned by the SEC; convicted of violating any law (federal or state), related to securities, investment management or banking? If yes, please describe the nature of the matter, identify the individuals involved, explain current status or findings and provide a copy of any decision or report. Please also describe any changes to your firm s internal procedures and/or controls implemented as a result of such proceedings. 4. Has your firm or any of its investment professionals ever been subject to any investment-related judgments, indictments or settlements of potential litigation with or without admission of fault, guilt or liability? If yes, please provide a full explanation. 5. Explain whether you comply with the bonding requirements of Section 412 of ERISA. 6. Please attach a copy of the certificates of insurance for your current investment counselors liability policy (errors and omissions) and fidelity bond (Section 412 of ERISA). E-2

8 C. Staffing 1. Using the format below, please indicate the number of personnel within each category, firm wide. Chief Investment Officer Portfolio Managers Economic Analysts Security Analysts Traders Credit Analysts Administrative Client Service / Marketing Other Equity Management Other Products 2. Please provide an organization chart of your firm. 3. For the product requested in this RFP, is it managed out of more than one office? 4. Identify, using the format below, all investment personnel who joined or left the firm over the past three years, through 9/30/14 and indicate whether they were or are involved with managing the domestic equity product. Name Title Product or Area of Responsibility Date Left Firm Date Joined Firm Reason E-3

9 5. Identify all officers, portfolio managers and client service personnel involved in managing your firm s domestic equity strategy (using the following format) and highlight the person(s), who would be primarily responsible for the prospective client s account. Include in your response the bios of each member(s) who would be primarily responsible for the prospective client s account. Name Title Years of Experience Years with Firm School Degree 1 6. Describe the firm s compensation scheme for investment professionals, including a description of any deferred bonus, profit sharing or equity arrangements. Please be as thorough as possible without being specific as to any individual. 7. Is an individual portfolio manager assigned to each client? If so, how many accounts is the portfolio manager responsible for overseeing? Have there been changes in the portfolio manager's responsibilities or workload in the last 3 years? If yes, please describe. 8. What plans, if any, does the firm have in place to assure account continuity in the event that a portfolio manager or other investment professionals involved in managing the account leave the firm? 9. How frequently does your firm normally meet with clients? How quickly are significant firm changes (e.g., personnel, ownership) communicated to clients and consultants? By what method are such changes communicated? 10. Who conducts marketing for your firm, a separate marketing staff or portfolio managers? 1 Most advanced degree only E-4

10 D. Assets Under Management 1. Please provide information regarding your firm s total assets under management in the format below, for the previous five calendar years. Firm Assets Tax-exempt Taxable Assets by Product Type Commingled/Mutual Funds Separate Account Assets by Client Institutional Private Client/Retail Accts Accts Accts Accts Accts 2. Please provide information regarding total assets and number of accounts managed by the firm as of 9/30/14 for each distinct product or investment style in the format below: Product Asset Class and Style Domestic Equity Int l Equity Domestic Fixed Int l Fixed Other (Global, Single Country, Regional and Emerging Markets) Firm Separate Accounts Assets of Accts. ($Mil) Commingled/ Mutual Funds Assets of Accts. ($Mil) of Accts. Assets ($Mil) E-5

11 3. What plans, if any, does the firm have in place to manage its growth in assets under management? Has the firm established any maximums for firm wide or product assets? Does the specific strategy have a maximum capacity level? 4. Please identify all clients that have terminated accounts firm wide over the past three years. Include type of client (e.g., endowment), market value of account, style of management and reason for termination. 5. Please provide the following information regarding the equity product being proposed for the previous five calendar years. product/style assets Tax-exempt Taxable Product assets type Commingled Separate account Product assets by Client Institutional Private Client/Retail Accts Accts Accts Accts Accts 6. Please provide the following information regarding the five largest clients whose assets are currently invested in the equity product being proposed. Account Type Assets Date Hired E-6

12 7. Proposed equity product gains and losses for the previous five calendar years: Gains Losses Year No. Accounts Assets No. Accounts Assets II. Investment Process A. Investment Philosophy and Process 1. What is the appropriate benchmark for this style of management? 2. Describe your investment philosophy for managing the equity product or investment style being proposed, and indicate why your firm believes that your investment process will be successful in the future. 3. Describe in detail your investment decision making process. Include in your discussion the responsibilities of the individuals involved at each step of the investment process, the role of research, how decisions are made to purchase a security for the portfolio and the portfolio construction process. 4. Describe the research process that supports this style of management. Discuss the relative importance of internally generated versus external street research in your investment process. 5. With the exception of specific client guidelines, do you use a model portfolio for all client accounts or do individual portfolio managers have discretion to construct portfolios that are unique to their perspective? 6. Is there an investment committee, and if so, what role does it play in the investment process? How much oversight does the investment committee have over individual portfolio manager decisions? 7. Describe the types of computer software, securities databases and pricing sources utilized as part of your investment process. Do you use any proprietary analytical programs or models? If so, describe them. E-7

13 8. What role, if any, do the following play in your investment philosophy and process? Please describe. i. Top-down economic analysis and forecasting ii. iii. iv. Bottom-up, fundamental security analysis Sector analysis and/or sector rotation Quantitative screening, multi-factor model ranking, risk modeling v. Earnings or price momentum vi. vii. Technical analysis Derivatives 9. What is the maximum account sector overweight or underweight relative to the performance benchmark? 10. Does your investment process have any explicit guidelines related to the maximum individual security position permissible in any client account? 11. Describe your firm s use of cash in the investment process. 12. How many securities are typically held in the client s portfolio in this style of management? What is your firm s typical holding period for securities purchased? How much security turnover, on average, is there in this account? In the composite? 13. Describe the capitalization and style bias of your portfolio. Are there any limits with regard to capitalization? 14. Describe your firm s sell criteria and any override procedures. 15. How is compliance with client guidelines monitored and enforced? B. Brokerage 1. Describe the extent; if any, of your firm s use of soft dollars (or spread rebate for fixedincome securities), including responding to the following questions. a. List the goods and services your firm "purchases" with soft dollars and provide a copy of your most recent annual soft dollar budget. E-8

14 b. Which of these goods and services are used to benefit the proposed account? Describe how. c. How does your firm determine whether or not these goods and services are adding value to the proposed portfolio? Please be specific. d. Has your firm systematically and regularly evaluated the quality of its trade executions relative to the level of commissions paid? If yes, explain and be prepared to demonstrate. If no, please describe why not. If your firm s trading has ever been evaluated by a third party (e.g., Plexus), please provide us a copy of the most recent report describing that study. e. Are the soft dollars earned with the Client s assets proportional to the Client s assets used in accumulating the soft dollars relative to all assets under management? If yes, please explain how you track this activity and be prepared to share documentation. If no, please describe why not. f. How much in soft dollars did your firm generate each year for the past 3 calendar years? g. How much is your average commission per share? Does your firm instruct broker/dealers to include the commission rate on trade tickets and does your affirmation of the trade details contain commission information? 2. Does your firm trade client accounts through any related or affiliated broker/dealer? If yes, please describe the nature of the relationship and indicate percentage of trades directed through such affiliate(s). 3. What is your firm s opinion as to the use of directed brokerage or commission recapture programs? Would your firm participate in a Client-directed commission recapture or directed brokerage program? If so, what is the maximum percent of the commissions that your firm would direct (a) with and (b) without client direction? E-9

15 C. Account Characteristics 1. Does your firm provide periodic reports to clients regarding account holdings, investment characteristics and performance? If so, how frequently? 2. Please provide the following portfolio characteristics for the domestic equity product or style being proposed and the product benchmark as of 9/30/14, as follows: Price / Earnings Ratio Price / Book Ratio Dividend Yield Median Market Cap Weighted Avg. Market Cap Beta Composite Benchmark Sectors (fill in as appropriate) Composite Benchmark Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Telecommunication Services Utilities 3. Capitalization Ranges a) Define the cap ranges your firma assigns to micro, small, mid and large-cap stocks. b) Does your firm s style allow you to weight the portfolio entirely in a single cap range, e.g., small cap; or does the style require your firm to hold stocks across several cap ranges? If yes, define the ranges. c) How much micro cap will you buy in this style? d) What is the smallest market capitalization of a company whose stock you will buy for the portfolio? E-10

16 4. Capitalization breakdown over the last five calendar years: % of Portfolio Micro Small Mid Large Cash 100% 100% 100% 100% 100% 5. How frequently does your firm calculate performance for client accounts? Do such calculations segregate equity only returns, fixed-income returns and cash returns? Are your firm s performance calculations done on a gross-and/or net-of-fee basis? 6. Please provide the following information regarding the dispersion of account returns within the composite being presented for the previous five calendar years: Best Performing Account Worst Performing Account Difference Standard Deviation 7. How does the firm seek to control dispersion of returns among client accounts with similar investment mandates? 8. For the previous five calendar years (on a year-by-year basis), please provide attribution analysis for the following criteria: (a) sector allocation; and (b) stock selection. 9. Please describe any periods when performance failed to meet expectations and what changes, if any, were made thereafter to your investment process. 10. Is the Client s account in the composite? Describe how the composite being presented is constructed including the number of accounts in the composite, total assets and percentage of firm assets represented by the composite, and whether segments of multi-asset accounts (e.g., the equity only portion of balanced accounts) are included in the composite. 11. Does your firm calculate and present account performance in compliance with the CFA Institute s Global Investment Performance Standards (GIPS ) (if so, please include a copy of the most recent verification report)? If the composite performance presented above is not in compliance with GIPS, please describe why? E-11

17 12. If the product has targeted levels for absolute or excess return (alpha) and risk or active risk (tracking error), please describe what those targets are, as well as when and how they were established. 13. Do you target a specific information ratio for the proposed product? 14. Please provide a copy of the most recent marketing presentation for this product. 15. Please provide a copy of the most recent client quarterly report. D. Other Investment Related Issues 1. Proxy Issues a. Does your firm vote proxies or has your firm retained another firm to vote the proxies under your firm s direction? If your firm does not vote the proxies has your firm received permission from clients to retain an outside party to vote proxies? What is the cost of this service and who pays for the service? b. Does your firm have written policies, voting positions and procedures regarding the voting, recording and tabulation of proxies? Please forward a copy. c. Has your firm sent a copy of its most recent policies, voting positions and procedures to the client? d. Does your firm annually report its proxy voting record to the client? e. Does your firm periodically review its position regarding specific proxy issues? 2. Custodial Issues a. Does your firm regularly reconcile its record of securities positions and market values with client account custodial statements? If so, please provide a copy of a recent reconciliation. If not, describe why. b. Does participation in a securities lending program cause your firm any problems? If yes, please explain. E-12

18 3. Account Fees and Minimums Please provide your current fee schedules that you charge for the domestic equity product for all versions of the product (i.e., SMA, commingled fund, mutual fund, etc). Please also provide the minimum investment for each. 4. List all outside service providers (such as auditor, legal counsel, etc.). E. Risk Management 1. Independent Risk Management a. Does your firm have a risk management and oversight officer? Does that risk officer operate independently from portfolio managers or other staff members responsible for establishing investment policy? If there is no independent risk manager, how does the firm monitor investment risk? b. Has your firm ever been subjected to an independent evaluation of its internal control policies and procedures? If so, please provide a copy. In either case, please highlight your firm s internal control policies and procedures as they relate to the investment process, including, but not limited to, the following: portfolio trade processing portfolio accounting and reconciliation compliance with firm and client specified investment guidelines c. Does your firm have a written ethics policy and personal securities compliance guidelines for employees? Describe what steps your firm takes in order to eliminate possible conflicts of interest between client portfolios and securities transactions by the firm and/or its personnel. d. How are exceptions to a client s investment guidelines identified? If such exceptions are identified, to whom are they reported internally and what are the procedures for detecting and reversing non-compliant trades? Does your firm have formal audit and reconciliation procedures to monitor compliance with written policies and regulatory requirements? E-13

19 CITY OF ANNAPOLIS POLICE AND FIRE RETIREMENT PLAN ( Plan ) EMERGING INVESTMENT MANAGEMENT - FIXED INCOME INVESTMENT PRODUCT Please provide complete responses to the following questions as they relate to your investment style. Feel free to include any additional information or analysis beyond what is specifically requested below. Firm Name: Address: Contact Person: Name: Phone: Fax: Address: Name of Product: Benchmark for product: I. Organization History and Structure A. Ownership Structure 1. Describe your firm s current capital structure and ownership structure. Also describe the extent to which your firm s investment professionals hold equity in the firm. 2. Does your firm have any affiliates and/or controlling parties? If so, please describe. 3. Have there been recent changes in your firm s ownership? Does your firm contemplate any changes in ownership within the next 12 months? 4. Please provide us with a copy of your firm s current Form ADV Part II. F-1

20 B. Regulatory and Insurance Issues 1. Is your firm a registered investment advisor under the Investment Advisors Act of 1940? 2. Does your firm satisfy the requirements of ERISA Section 3(38), and does it acknowledge fiduciary responsibility for the management of client accounts in this product? 3. Has your firm or any of its current or past investment professionals ever been the subject of any litigation; audit or a civil or criminal investigation by the SEC, IRS, DOL or other regulatory authority; sanctioned by the SEC; convicted of violating any law (federal or state), related to securities, investment management or banking? If yes, please describe the nature of the matter, identify the individuals involved, explain current status or findings and provide a copy of any decision or report. Please also describe any changes to your firm s internal procedures and/or controls implemented as a result of such proceedings. 4. Has your firm or any of its investment professionals ever been subject to any investment-related judgments, indictments or settlements of potential litigation with or without admission of fault, guilt or liability? If yes, please provide a full explanation. 5. Explain whether you comply with the bonding requirements of Section 412 of ERISA. 6. Please attach a copy of the certificates of insurance for your current investment counselors liability policy (errors and omissions) and fidelity bond (Section 412 of ERISA). F-2

21 C. Staffing 1. Using the format below, please indicate the number of personnel within each category, firm wide. Chief Investment Officer Portfolio Managers Economic Analysts Security Analysts Traders Credit Analysts Administrative Client Service / Marketing Other Fixed Income Management Other Products 2. Please provide an organization chart of your firm. 3. For the product requested in this RFP, is it managed out of more than one office? 4. Identify, using the format below, all investment personnel who joined or left the firm over the past three years, through as of 9/30/14, and indicate whether they were or are involved with managing the fixed income product. Name Title Product or Area of Responsibility Date Left Firm Date Joined Firm Reason F-3

22 5. Identify all officers, portfolio managers and client service personnel involved in managing your firm s fixed income strategy (using the following format) and highlight the person(s), who would be primarily responsible for the prospective client s account. Include in your response the bios of each member who would be primarily responsible for the prospective client s account. Name Title Years Of Experience Years with Firm School Degree 1 6. Describe the firm s compensation scheme for investment professionals, including a description of any deferred bonus, profit sharing or equity arrangements. Please be as thorough as possible without being specific as to any individual. 7. Is an individual portfolio manager assigned to each client? If so, how many accounts is the portfolio manager responsible for overseeing? Have there been changes in the portfolio manager's responsibilities or workload in the last 3 years? If yes, please describe. 8. What plans, if any, does the firm have in place to assure account continuity in the event that a portfolio manager or other investment professionals involved in managing the account leave the firm? 9. How frequently does your firm normally meet with clients? How quickly are significant firm changes (e.g., personnel, ownership) communicated to clients and consultants? By what method are such changes communicated? 10. Who conducts marketing for your firm, a separate marketing staff or portfolio managers? 1 Most advanced degree only F-4

23 D. Assets Under Management 1. Please provide information regarding your firm s total assets under management in the format below, for the previous five calendar years. Firm Assets Tax-exempt Taxable Assets by Product Type Commingled/Mutual Funds Separate Account Assets by Client Institutional Private Client/Retail Accts Accts Accts Accts Accts 2. Please provide information regarding total assets and number of accounts managed by the firm as of 9/30/14 for each distinct product or investment style in the format below: Product Asset Class and Style Domestic Equity Int l Equity Domestic Fixed Int l Fixed Other (Global, Single Country, Regional and Emerging Markets) Firm Separate Accounts Assets of Accts. ($Mil) Commingled / Mutual Funds Assets of Accts. ($Mil) of Accts. Assets ($Mil) 3. What plans, if any, does the firm have in place to manage its growth in assets under management? Has the firm established any maximums for firm wide or product assets? Does the specific strategy have a maximum capacity level? F-5

24 4. Please identify all clients that have terminated accounts firm wide over the past three years. Include type of client (e.g., endowment), market value of account, style of management and reason for termination. 5. Please provide the following information regarding the fixed income product being proposed for the previous five calendar years. product/style assets Tax-exempt Taxable Product assets type Commingled Separate account Product assets by Client Institutional Private Client/Retail Acct Acct Acct Acct Acct 6. Please provide the following information regarding the five largest clients whose assets are currently invested in the fixed income product being proposed. Account Type Account Value Date Hired F-6

25 7. Proposed fixed income product gains and losses: Gains Losses of Accounts Assets of Accounts Assets II. Investment Process A. Investment Philosophy and Process 1. What is the appropriate benchmark for this style of management? 2. Describe your investment philosophy for managing the fixed income product or investment style being proposed, and indicate why your firm believes that your investment process will be successful in the future. 3. Describe in detail your investment decision making process. Include in your discussion the responsibilities of the individuals involved at each step of the investment process, the role of research, how decisions are made to purchase a security for the portfolio and the portfolio construction process. 4. Describe the research process that supports this style of management. Discuss the relative importance of internally generated versus external street research in your investment process. 5. With the exception of specific client guidelines, do you use a model portfolio for all client accounts or do individual portfolio managers have discretion to construct portfolios that are unique to their perspective? 6. Is there an investment committee, and if so, what role does it play in the investment process? How much oversight does the investment committee have over individual portfolio manager decisions? 7. Describe the types of computer software, securities databases and pricing sources utilized as part of your investment process. Do you use any proprietary analytical programs or models? If so, describe them. F-7

26 8. What role, if any, do the following play in your investment philosophy and process? Please describe. i. Top-down economic analysis and forecasting ii. iii. iv. Bottom-up, fundamental security analysis Sector analysis and/or sector rotation Interest rate forecasting v. Credit analysis vi. vii. viii. ix. Yield curve placement Derivatives Below investment grade bonds Non-dollar and emerging market bonds x. Non-agency mortgage backed securities 9. What is the smallest issue size from which you will buy securities? 10. What is the maximum account sector overweight or underweight relative to the performance benchmark? 11. Does your investment process have any explicit guidelines related to the maximum individual security position permissible in any client account? 12. Describe your firm s use of cash in the investment process. 13. How many securities are typically held in the client s portfolio in this style of management? What is your firm s typical holding period for securities purchased? How much security turnover, on average, is there in this account? In the composite? 14. Describe your firm s sell criteria and any override procedures. 15. How is compliance with client guidelines monitored and enforced? F-8

27 B. Brokerage 1. Describe the extent, if any, of your firm s use of soft dollars (or spread rebate for fixedincome securities), including responding to the following questions. a. List the goods and services your firm "purchases" with soft dollars and provide a copy of your most recent annual soft dollar budget. b. Which of these goods and services are used to benefit the proposed account? Describe how. c. How does your firm determine whether or not these goods and services are adding value to the proposed portfolio? Please be specific. d. Has your firm systematically and regularly evaluated the quality of its trade executions relative to the level of commissions paid? If yes, explain and be prepared to demonstrate. If no, please describe why not. If your firm s trading has ever been evaluated by a third party (e.g., Plexus), please provide us a copy of the most recent report describing that study. e. Are the soft dollars earned with the Client s assets proportional to the Client s assets used in accumulating the soft dollars relative to all assets under management? If yes, please explain how you track this activity and be prepared to share documentation. If no, please describe why not. f. How much in soft dollars did your firm generate each year for the past 3 calendar years? g. How much is your average commission per share? Does your firm instruct broker/dealers to include the commission rate on trade tickets and does your affirmation of the trade details contain commission information? 2. Does your firm trade client accounts through any related or affiliated broker/dealer? If yes, please describe the nature of the relationship and indicate percentage of trades directed through such affiliate(s). 3. What is your firm s opinion as to the use of directed brokerage or commission recapture programs? Would your firm participate in a Client-directed commission recapture or directed brokerage program? If so, what is the maximum percent of the commissions that your firm would direct (a) with and (b) without client direction? F-9

28 C. Account Characteristics 1. Does your firm provide periodic reports to clients regarding account holdings, investment characteristics and performance? If so, how frequently? 2. Please provide the following portfolio characteristics for the fixed income product or style being proposed and the product benchmark, as of 9/30/14, for the previous five calendar years: a) Quality breakdown (Gov t, AAA, AA, etc.) b) Yield to Maturity, Effective Duration, Weighted Average Quality c) Sector breakdown 3. How frequently does your firm calculate performance for client accounts? Do such calculations segregate equity only returns, fixed-income returns and cash returns? Are your firm s performance calculations done on a gross and/or net of fee basis? 4. Please provide the following information regarding the dispersion of account returns within the composite being presented for the previous five calendar years: Best Performing Account Worst Performing Account Difference Standard Deviation 5. How does the firm seek to control dispersion of returns among client accounts with similar investment mandates? 6. For the previous five calendar years (on a year-by-year basis), please provide attribution analysis for the following criteria: (a) sector allocation (b) security selection and (c) duration. 7. Please describe any periods when performance failed to meet expectations and what changes, if any, were made thereafter to your investment process. 8. Is the client s account in the composite? Describe how the composite being presented is constructed including the number of accounts in the composite, total assets and percentage of firm assets represented by the composite, and whether segments of multi-asset accounts (e.g., the equity only portion of balanced accounts) are included in the composite. F-10

29 9. Does your firm calculate and present account performance in compliance with the CFA Institute s Global Investment Performance Standards (GIPS ) (if so, please include a copy of the most recent verification report)? If the composite performance presented above is not in compliance with GIPS, please describe why. 10. If the product has targeted levels for absolute or excess return (alpha) and risk or active risk (tracking error), please describe what those targets are, as well as when and how they were established. 11. Do you target a specific information ratio for the proposed product? 12. Please provide a copy of the most recent marketing presentation for this product. 13. Please provide a copy of the most recent client quarterly report. D. Other Investment Related Issues 1. Custodial Issues: Does your firm regularly reconcile its record of securities positions and market values with client account custodial statements? If so, please provide a copy of a recent reconciliation. If not, describe why. 2. Account Fees and Minimums: Please provide your current fee schedules that you charge for the fixed income product for all versions of the product (i.e., SMA, commingled fund, mutual fund, etc.). Please also provide the minimum investment for each. 3. List all outside service providers (such as auditor, legal counsel, etc.). F-11

30 E. Risk Management 1. Independent Risk Management a. Does your firm have a risk management and oversight officer? Does that risk officer operate independently from portfolio managers or other staff members responsible for establishing investment policy? If there is no independent risk manager, how does the firm monitor investment risk? b. Has your firm ever been subjected to an independent evaluation of its internal control policies and procedures? If so, please provide a copy. In either case, please highlight your firm s internal control policies and procedures as they relate to the investment process, including, but not limited to the following: portfolio trade processing portfolio accounting and reconciliation compliance with firm and client specified investment guidelines c. Does your firm have a written ethics policy and personal securities compliance guidelines for employees? Describe what steps your firm takes in order to eliminate possible conflicts of interest between client portfolios and securities transactions by the firm and/or its personnel. d. How are exceptions to a client s investment guidelines identified? If such exceptions are identified, to whom are they reported internally and what are the procedures for detecting and reversing non-compliant trades? Does your firm have formal audit and reconciliation procedures to monitor compliance with written policies and regulatory requirements? F-12