THE COLORADO TRUST REQUEST FOR PROPOSALS INVESTOR ADVISORY SERVICES 2016 THE COLORADO TRUST REQUEST FOR PROPOSALS INVESTMENT ADVISORY SERVICES 2016 1
THE COLORADO TRUST Request for Proposals Investment Advisory Services Contents Topic I. The Colorado Trust II. III. IV. Description of Services Information Required Proposal Review and Evaluation V. Right to Reject 2
I. THE COLORADO TRUST The Colorado Trust (The Trust) is an independent, private foundation whose mission is advancing the health and well-being of the people of Colorado. The Trust s vision and the focus of its grant making is for all Coloradoans to have fair and equal opportunities to lead healthy, productive lives regardless of race, ethnicity, income or where they live. The Trust is exempt from Federal income tax under the provisions of Section 501(c)(3) of the Internal Revenue Code and is classified as a private foundation under Section 509(a). The foundation was created in 1985 with an original endowment of $191 million upon the sale of the nonprofit PSL Health Care Corporation to a for-profit hospital management company. It is governed by a nine member board of trustees, and is managed by a professional staff of 24 employees. As of December 31, 2015, the approximate market value of the Foundation's investment portfolio was $439 million. The 2016 grant budget is approximately $20 million. The foundation's investment philosophy is currently guided by its Investment Committee which includes nine voting members comprised of five trustees, three non-trustee community members and the CEO. Staff support of the committee is provided by The Trust s finance department that includes a vice president and chief financial officer, and a controller. A copy of The Trust s Statement of Investment Policy is included as an attachment. The goal of The Trust s Investment Program is, on an annual basis, to provide financial support necessary to meet the vision of The Trust and, on a long term basis, to grow the aggregate value of the portfolio at least at the rate of inflation in order that the future grant making activity and operations may continue in perpetuity. Since we must adhere to the 5% annual payout requirements of the Internal Revenue Code and provide for inflation each year, The Trust has established a real return goal of 5.5% annually. It is recognized that there is likely to be short-term volatility. II. DESCRIPTION OF SERVICES The primary non-discretionary investment consulting services required on an annual basis are listed below: A. Quarterly Investment Performance Reporting and Manager Monitoring: Provide comprehensive performance reporting for each of The Trust s investments including comparisons to performance benchmarks detailed in the Statement of Investment Policy over multiple historical periods. Monitor managers and provide timely notification and analysis of changes in the management team, style, or other qualitative issues. B. Investment Policy Review: Assist in the annual review of the foundation's policy and asset allocation analysis. Provide the committee with current written and electronic research relating to asset allocation and other appropriate investment topics. As appropriate, make recommendation for asset allocation and other policy changes. 3
C. Investment Manager Searches: At the request or need of the committee, conduct searches for investment managers in both traditional asset classes and alternative asset classes. The search should include all phases from initial manager identification through a recommendation on the selection of final candidates. D. Professional Development: Provide access to the consultant's database of investment manager performance, specialized written or electronic materials and research, educational seminars or programs. Make informational presentations to the committee on investment topics deemed to be of interest or relevance to the committee or the consultant. E. Investment Committee Attendance: The committee generally meets four to six times a year in regular meetings and also may meet more frequently to conduct manager selections or to review special topics as necessary. The consultant is expected to attend all meetings of the committee and to provide relevant data and to make presentations as outlined above. III. INFORMATION REQUIRED General Information A. Consulting Firm Information 1. What is your firm s complete name and relevant contact information? 2. Brief history of your firm, including year of inception, ownership composition, affiliated companies and their relationships to your firm, and any significant business developments within your firm during the past three years. 3. Please provide the number of tax-exempt investment consulting accounts gained and lost over the past 5 years. Indicate reasons for terminations if known. 4. What experience does your firm possess in providing investment consulting to a taxexempt foundation? Provide the client distribution of your firm per the following table: For all Foundations and Endowments, Number of Clients in each Aggregate Market Value: 1) Below $100 million; 2) $101 - $500 million; 3) $501 - $1 billion; 4) above $1 billion; 5) Total. 5. Full list of services provided by your firm, lines of business and the percentage of total revenues that each business line comprises (including percentage of revenues generated from consulting services and percentage generated from the sale of services to investment managers). 6. Describe your firm s commitment to diversity, including the history of the development of that philosophy and examples of your firm s diversity efforts that you believe demonstrate your capacity to translate your philosophy into effective action. B. Conflicts of Interest 1. Is your firm, its parent or any affiliate, a registered investment advisor with the SEC under the Investment Advisors Act of 1940? Please include Form ADV, Part II. 2. Has the firm adopted the CFA Institute s Code of Ethics and Standards of Professional Conduct? 4
3. In the past 5 years, has your organization or an officer or principal been involved, as a party or otherwise in any litigation, arbitration, disciplinary proceeding or other legal proceedings relating to your consulting activities? If so, provide an explanation and indicate the current status or disposition. 4. Are there any circumstances specifically related to your investment consulting activities under which your firm, its officers or employees receive direct or indirect compensation from investment managers? If so, please describe in detail. 5. Describe the firm s policy on conflict of interest. Does your firm, its parent or affiliate sell information or any other services to investment managers? If so, please describe in detail. Does your firm have any affiliation with a brokerage firm? If so, please describe. C. Employees 1. List the number of employees, professional and support, in each function and/or location. What is the average consultant-to-client ratio? 2. Describe the volume of work and number of client responsibilities handled by your key personnel and the lead consultant identified for this account. 3. Description of the professional team that would be directly responsible for providing services to The Trust, including name, title, home office location, tenure with the firm, brief biographical outline, role on the team, scope of involvement, and current client load. 4. Description of the firm s hiring, recruitment, retention and compensation practices. What has the turnover been among the professional staff over the past five years by professional position by year? Consulting Activities A. Investment Planning and Asset Allocation 1. Description of your firm's overall investment methodology as it pertains to the development of an investment policy, asset allocation and portfolio structure and how it may differ from other investment-consulting firms. 2. Discuss the firm s investment philosophy regarding alternative investments. Provide the firm s classification or breakdown of various strategies. What percentage of the firm s clients currently implements the philosophy? 3. Discuss the firm s approach and utilization of socially responsible investing (SRI) investments. What percentage of the firm s clients currently implements SRI investments? 4. What asset allocation modeling capabilities does the firm possess? 5. You may wish to provide your reaction to The Trust s asset allocation, manager structure, and performance benchmarks referred to in the Statement of Investment Policy or Asset Allocation document. B. Investment Manager Search 1. Description of size and type of your relevant manager universe used in the peer comparison of performance evaluation. Is it internal/proprietary or third-party purchased? If purchased, describe the data source. Is the database accessible by clients? Does the firm directly or indirectly charge investment managers to be included in the 5
database? If so, please provide details and relate the relationship to the firm s conflict of interest policy. 2. Description of the internal structure and organization of the research department. What external sources of information are used in the research process? How is external and internal research integrated? Please provide examples of tactical advice given to clients based on market opportunities. Please provide a sample of recent research reports. 3. Discuss the firm s investment philosophy regarding alternative investments. Provide the firm s classification or breakdown of various strategies. What percentage of the firm s clients currently implements the philosophy? 4. Provide details regarding the firm s experience in researching, analyzing and recommending various types of alternative investments and specific managers. 5. What are the guidelines you give to a client with respect to terminating an investment manager? C. Performance Reporting 1. Description of the performance and risk monitoring process and staff dedicated to this function. Include an overview of software used. 2. Give a brief overview, including history and current status, of the hardware and software systems used in the production of performance reports. Is the software developed inhouse? Is any production work subcontracted to another firm? What is the process and commitment for keeping software updated? 3. Description of the process for disseminating timely existing manager information such as capacity issues, key personnel changes, etc., to clients. 4. What are the typical guidelines for watch listing or recommending that an investment manager be terminated? 5. Describe how benchmarks are chosen or developed and how performance is compared to similar portfolios. Can your firm provide custom/style benchmarks and universes? 6. Can performance monitoring reports be customized? 7. How often are performance monitoring reports available? 8. Please provide a sample of your performance monitoring report. D. Custodian Search and Fee Monitoring 1. Discuss your custodian/trustee search capabilities and procedures. 2. What is your approach to reviewing and monitoring custodian/trustee fees? E. Other 1. Please provide additional information you would like us to know that would differentiate your firm and services. References List of at least three references, with names, telephone numbers, asset values, years serviced, services provided by your firm, and prior authorization for us to contact them. The most appropriate references would be private foundations of roughly the same asset size as The Trust. 6
Fee Proposal Provide a proposed fee for your services for our account. Distinguish between investment management fees, consulting fees, and direct hedge fund and/or private equity investment management fees. Note which services are in your base fee and which are optional. Provide an estimate of expenses, including travel. IV. PROPOSAL REVIEW AND EVALUATION Timeline March 14, 2016 April 8, 2016 Week of April 25, 2016 Week of May 16, 2016 May 23, 2016 July 1, 2016 RFP distributed Proposals due to The Trust Investment Committee reviews proposals and selects finalists Investment Committee interviews finalists Investment Committee approves selection Consulting relationship begins All proposals shall be submitted electronically to The Trust prior to 5 p.m. on April 8, 2016. Proposals must be delivered to rfp@coloradotrust.org. Only those proposals that meet all the mandatory criteria in the RFP will be given consideration. While cost is a factor, the selection will not be awarded solely on the basis of cost. V. RIGHT TO REJECT The Trust reserves the right to: Reject any or all proposals submitted. Request additional information from any or all firms submitting proposals. Conduct discussions with respondents for the purpose of clarification to assure full understanding of, and responsiveness to, the solicitation requirements. Negotiate modifications to the firm's proposal prior to final award for the purpose of obtaining best and final offers. 7
EXHIBIT A THE COLORADO TRUST STATEMENT OF INVESTMENT POLICY May 14, 2015 I. PREAMBLE The Colorado Trust is committed to achieving access to health for all Coloradans. In working toward this goal our long term vision The Trust partners with and supports nonprofit organizations, government entities and communities to create a coordinated system of policies, programs and services that expand and improve health coverage and health care. First and foremost, The Trust is dedicated to supporting efforts to help gain access to health for people who are the most vulnerable and disadvantaged, including children and low income working families. From there, The Trust will work to assure every person in Colorado receives affordable, timely and quality care without exception for race or ethnicity, socioeconomic status or geographic location. The Board of Trustees of The Trust (the Board) is responsible for grantmaking and investment decisions. The Board may delegate certain investment decisions to its Investment Committee (the Committee). At the direction of the Committee, The Trust shall retain professional investment management to assist in the appropriate investment of the assets of The Trust. The principle investment objective of The Colorado Trust is to maintain the real value of its investments in perpetuity while allowing for suitable grant expenditures that facilitate the fulfillment of The Trust s mission. Maintaining or growing the corpus in real terms requires an asset mix with a view of the long term historic performance of investments and consideration of the current 5% payout requirement of the Internal Revenue Code (the Code). The Board, therefore, believes the asset mix should be weighted in favor of equity or equity like investments. On the other hand, protecting the assets from serious erosion requires prudence and diversification of investments. The Board aims to meet these often contradictory goals of growth at low risk by diversification in asset classes, investment management styles and individual securities, while maintaining a portfolio of investments which over the long run is expected to provide a real rate of return over inflation and administrative and investment expenses sufficient to support the mission of the Trust. The purpose of this Statement of Investment Policy is to set forth the objectives, policies, and guidelines that will govern the investment of The Trust s assets. These guidelines are like a road map or a charter, not to be construed as absolutes, but rather as benchmarks to be interpreted in a thoughtful process by the Board, the Committee, and staff.
II. INVESTMENT OBJECTIVES A. Rate of Return Objectives: The long term investment objective for The Trust is to earn 5.5% real (net of inflation) investment returns. Inflation will be measured by the Consumer Price Index. Investment return includes total compound return, calculated to recognize all cash income plus realized and unrealized capital gains and losses, net of all investment transaction costs. The Board acknowledges that it will be difficult to achieve this objective in the short run. During periods when rate of return objectives are not met, spending may be limited to the minimum requirement of the Code. B. View of Risk: Risk means not only the potential loss of all or part of the investment portfolio, but also the volatility of returns in individual investments. The primary objective of the Board is the preservation of the principle plus sufficient real return to meet the mission of the Trust. By maintaining a diverse portfolio of investment classes, managers and securities, the Board hopes to significantly reduce the risk of loss and manage volatility of the overall portfolio. In addition, by having a broadly diversified equity portfolio, a bond fund managed on a total return basis, and allocations to real estate and alternative assets, the Board believes that variance from the benchmarks will be minimized. C. Cash Income Requirements: The investments of The Trust should provide for adequate liquidity to meet the current Code required grant payout (5% of the fair market value of assets) and administrative and investment expenses (approximately 0.5% of the fair market value of assets). D. Fiduciary Standards: The assets of The Trust shall be invested in a manner consistent with the laws of the State of Colorado and the Articles of Incorporation of The Trust. The Board, the Committee, and those acting on their behalf, shall exercise the judgment and care, under the circumstances then prevailing, which persons of prudence, discretion and intelligence would observe. All transactions that utilize assets of The Trust will be undertaken for the sole benefit of The Trust. In carrying out its investment policy, The Trust shall in all respects comply with the Code, as amended. The following acts or courses of action are proscribed by the Code and the Articles of Incorporation of The Trust and its investment policy shall be governed accordingly: 1. engaging in any act of self dealing (Code Section 4941); 2. retaining any excess business holdings (Code Section 4943); 3. making any investments which would jeopardize the carrying out of any of the exempt purposes of The Trust, (Code Section 4944); 4. making any taxable expenditure (Code Section 4945). It shall also be the policy of The Trust to meet the minimum payout requirements of Code Section 4942 and, if feasible and consistent with its other objectives, to exceed such payout requirements as necessary to effect a reduction in the excise tax imposed by Code Section 4940 from 2% to 1%. III. INVESTMENT COMMITTEE In order to assist the Board with its fiduciary duties, in 2006 the Board established an
Investment Committee. With respect to investments, the role of the Committee is to determine the selection and retention of investment managers and advisors, to determine the asset allocation of The Trust s investment portfolio, to periodically review and, as appropriate, recommend changes to The Trust s investment policy, and to set appropriate benchmarks and evaluate the performance of investment managers. IV. INVESTMENT GUIDELINES A. Asset Mix: The previously acknowledged conflicting goals of seeking high returns (i.e. 5.5% real) and minimizing risk demand a diversified portfolio which aims for high returns. By having a diversified equity allocation across the capitalization spectrum, a bond portfolio managed on a total return basis, and real estate and alternative asset components, the Board believes that it can seek higher returns while at the same time limiting volatility. These investment classes may include, but are not limited to, large cap, mid cap, small cap, and micro cap stocks, international and emerging market stocks, real estate, and a variety of alternative assets. In addition, the portfolio of some specific managers may be concentrated in as few as 20 to 40 individual securities with the intended result of increased return while accepting increased volatility. Over all, these investments must conform to the following asset allocation guidelines: B. Target Mix and Allowable Ranges: The target mix and allowable ranges are defined in the table on the next page. The defined ranges consider cost factors involved in rebalancing assets, the recognition of a move to new long term asset mix targets and the allowance for consideration of judgmental factors. C. Target Asset Allocation and Rebalancing: From time to time the Investment Committee will review The Trust s asset allocation targets and ranges and adjust them as required. The Chief Financial Officer, in consultation with the President and the Chair of the Committee, will periodically rebalance the portfolio by transferring assets between asset classes when actual percentages vary from policy targets in excess of the defined ranges. Cash inflows and outflows may be used as a rebalancing tool throughout the year on a regular basis. Cash inflows will be deposited to the under weighted asset class allocations and cash outflows will be drawn from the over weighted asset class allocations.
Asset Class Target Allocation Range Cash 0% < 3% Fixed Income: 20% 17-23% Inflation-Related Strategies 4% Core Bonds 10% Emerging Markets Debt 3% High-Yield Debt 3% U.S. Public Equities 23% 20-26% Non-U.S. Public Equities 24% 21-27% Alternatives Private Capital: Private Equity Venture Capital 12% 9-15% Natural Resources Distressed Debt/Equity Hedge Funds 10% 5-15% Commodities/Real Return 3% 0-6% Private Real Estate 8% 5-11% D. Equity Investments: The purpose of The Trust s equity investments is to provide longterm growth and returns to enable The Trust to meet its established investment goals. Equity investments may be made in part or in whole in a passive index or may be actively managed. It is understood that variance of returns will accompany this approach. The equity portfolio may include the following: 1. U.S. Public Equities: The primary purpose of this asset class is to provide overall core returns consistent with the general long term return objective of the total portfolio. It includes an appropriate diversification of Large, Mid, Small and Micro Cap stocks to achieve above market returns with some risk of increased volatility over the S&P 500. This asset class performance will be compared to the Dow Jones U.S. Total Stock Market index. 2. Non-U.S. Public Equities: The purpose of the international components of the portfolio is to provide additional actively managed equity exposure and higher returns, yet also provide diversification to reduce volatility of the overall portfolio. The use of a global mandate to recognize the increasing globalization of markets is permitted. The Non U.S. Public Equities class will be compared to the MSCI All Country World ex U.S. Index or other appropriate index.
E. Fixed Income Investments: The purpose of the fixed income investments is to provide stable cash flow, relatively stable returns and diversification to The Trust s overall portfolio. Fixed income investments may be made in part or in whole in a passive index or may be actively managed. The fixed income portfolio will be compared to the Barclays Capital Aggregate Bond Index. 1. The fixed income asset class shall be managed on a total return basis. It may include a high yield component. It will have the following characteristics: The weighted average maturity and the duration of fixed income investments should be within two years of the Barclays Capital Aggregate Bond Index. 2. The average fixed income portfolio quality should be "A" rated or better. 3. Bonds owned by The Trust should generally be rated "BBB" or better by Standard and Poor's or an equivalent rating agency with the following exceptions: i) When bond ratings have dropped below BBB after purchase and when the investment manager deems it economically beneficial to retain ownership ii) 15% of the bond portfolio may be BB, B or unrated bonds determined by the portfolio manager to be of similar quality 4. Adequate diversification by issuer and sector should be maintained. However, this diversification requirement shall not apply to U.S. Treasury and Agency obligations that may be held in unlimited amounts within the fixed income component of the fund. F. Real Estate: The purpose of real estate in The Trust s portfolio is to provide diversification to the Trust s overall portfolio. Permissible investments include: 1. Net Leased Real Estate The purpose of net leased real estate is to provide bond like cash on cash returns, and a hedge against inflation. Net leased real estate will include properties owned free of debt and leased to U.S. or international companies. They may be purchased directly or in commingled pools managed by external managers. 2. Other Real Estate The purpose of real estate in The Trust s portfolio is to provide counter cyclical returns and a defense against inflation. Permissible investments include closed end commingled real estate funds, private or publicly traded real estate investment trusts (REITs) or directly purchased real estate. Leverage may be employed when risk/return characteristics are viewed favorably and tax consequences are considered.. These investments will be compared to the NCREIF or NAREIT benchmarks as appropriate. G. Alternative Investments: The purpose of alternative investments is to provide diversification to the Trust s investment program while enhancing the overall expected return of Trust assets. Allowable investments may include hedge funds, private equity, venture capital, absolute return or other alternative asset classes. V. INVESTMENTS AND TRANSACTIONS THAT ARE NOT PERMITTED IN SEPARATELY MANAGED ACCOUNTS A. Equity Portfolios: The following are not permissible investments:
1. Short sales of any type 2. Letter or restricted stock 3. Buying or selling on margin B. Fixed Income Portfolios: The following are not permissible investments: 1. Bonds, notes or other indebtedness for which there is no public market (private placements) however Sec. 144A securities are permissible 2. Commercial paper (rated below A 1/P 1) 3. Master notes 4. Letters of credit C. Options and Futures: Direct transactions are not permitted in futures or options contracts of any kind, but currency hedging on international investments and a wide variety of derivatives in the fixed income portfolio and in alternative investments are permissible. VI. OTHER POLICIES A. Securities Lending: Securities owned by The Trust but held in custody by another party, such as a bank custodian, will not be loaned to any other party for any purpose, unless such securities lending is pursuant to a separate written agreement approved by the Committee. B. Program-Related Investments: The Trust may, at the Board s discretion, make Program-Related Investments that contradict these policies when, in its judgement, the charitable purpose of such investment outweighs the investment risk and return. C. Investment Manager Structure: Upon direction of the Committee, The Trust shall retain one or more investment management firms to implement the investment program defined herein. Asset class structure efficiency will be reviewed periodically. D. Investment Manager Discretion: Investment managers retained by The Trust shall have full discretionary investment authority over the assets for which a manager is responsible, subject to the guidelines and policies set forth in this document. E. Proxy Voting: Investment managers shall vote shares owned by The Trust in the best interests of The Trust. F. Use of Consultants: In order to assist the Committee in carrying out its responsibilities under this Statement of Investment Policy, it may retain one or more investment consultants. The Committee may review annually the retention of consultants. VII. REVIEW PROCEDURES A. Review and Modification of Investment Policy: The Committee shall review this Investment Policy at least once a calendar year to consider whether it is necessary or desirable to recommend modifications to the Board. This review may include a discussion of present asset allocation in view of an investment horizon of 5 years or more. If modifications are approved by the Board, they shall be communicated to all investment managers and other interested persons. Any changes in asset allocation may be made over time to minimize the effects of inadvertent market timing and to
reduce transaction costs. B. Meetings with Investment Managers; Obligation to Inform Investment managers are expected to meet at least annually with the Committee, staff or The Trust s consultant to review current market strategy, portfolio structure and investment results. Managers are expected to meet more often with the Committee or the Board when so requested. Additionally, an investment manager is expected to notify the Chief Financial Officer and the investment consultant of any significant changes in ownership, decision making process, style, personnel, or fee structure. C. Performance Measurement: The Committee will review quarterly the performance of The Trust investments and of the individual managers relative to the objectives and guidelines described herein and provide a report of its review to the Board. D. Performance Benchmarks: The Committee expects that each investment manager will meet its respective index performance benchmarks net of fees over a market cycle. In addition, it is expected that over a market cycle of at least five years, managers will rank no lower than the 50 th percentile when compared to a representative sample of other investment managers of similar style and market capitalization. E. Valuation of Non Marketable Investments: As provided herein, The Trust may occasionally invest in real estate, program related investments or other such investments for which a readily available market does not exist. Market values for non marketable investments shall be determined using the net asset value per share as reported by the investment managers. The investment managers utilize a combination of market and income approaches. One or more of the following inputs are used: quoted market prices, appraisals and assumptions about discounted cash flow and other present value techniques depending on the type of investment. VIII. STAFF RESPONSIBILITIES Staff shall have the responsibility to support the Board and the Committee in all respects to enable each to make informed decisions with respect to their investment responsibilities. Such support shall include obtaining all requisite data, including market information and transaction costs. IX. THE INVESTMENT COMMITTEE; SPECIAL MEETING OF THE BOARD The Investment Committee shall make recommendations to the Board, with respect to all matters provided for in this statement of investment policy. Whenever there shall arise a matter of urgent concern affecting The Trust s portfolio, the Chair of the Investment Committee may request the Chair of the Board to call for a Special Meeting of the Board to review the matter.