PENSION RESERVES INVESTMENT MANAGEMENT BOARD
Pension Reserves Investment Management Board
Timothy P. Cahill, Chair
Michael G. Trotsky, CFA, Executive Director
84 State Street, Suite 250
Boston, Massachusetts 02109
December 13, 2010
Dear Potential Provider:
The Massachusetts Pension Reserves Investment Management (PRIM) Board is requesting proposals from qualified firms interested in providing investment management services for the Board’s Commonwealth of Massachusetts Based Economically Targeted Investments (ETI) program.
The Board will accept and evaluate equity, fixed income, real estate and private equity investment proposals to manage these assets in an approach that meets the Board’s ETI criteria. This solicitation will also be used to identify firms capable of implementing the requirements of the Economic Development Reorganization Act, in accordance with Section 171 of Chapter 240 of the Acts of 2010, which states that if reasonably possible, PRIM shall invest a minimum of $25,000,000 and a maximum of $50,000,000 in banks or financial institutions which make capital available to small businesses.
In order for proposals to be considered by PRIM, each prospective provider must respond to the Request for Proposals by submitting an electronic copy of its proposal via e-mail by 3:00 PM EST, Friday, January 28, 2011 to Ken E. Anadu at Kanadu@. In addition, an original and 1 copy of the proposal should be sent and received by Friday, January 28, 2011 to:
Mr. Ken E. Anadu - Investment Analyst
Pension Reserves Investment Management Board
84 State Street, Suite 250
Boston, Massachusetts 02109
Questions concerning the Request for Proposals must be submitted by 3:00 PM, EST, Monday, January 10, 2011.
We appreciate the time and effort required to respond to this Request for Proposal. Each firm submitting a proposal to PRIM can be assured that the same time and effort will be expended in evaluating the proposals that are submitted for consideration. We look forward to your response.
Sincerely,
Michael G. Trotsky, CFA
Executive Director
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
84 State Street, 2nd Floor, Boston, Massachusetts 02109
Timothy P. Cahill, Chair
Michael G. Trotsky, CFA, Executive Director
REQUEST FOR PROPOSALS
COMMONWEALTH OF MASSACHUSETTS BASED
ECONOMICALLY TARGETED INVESTMENTS (ETI) PROGRAM
INVESTMENT MANAGEMENT SERVICES
December 13, 2010
Table of Contents
I. INTRODUCTION 4
II. BACKGROUND INFORMATION 4
A. Legal Structure of PRIM. 4
B. PRIM’s Advisors. 5
C. General Description of PRIM’s Assets. 5
D. Sudan, Tobacco and iran Divestiture. 5
III. SCOPE OF SERVICES 6
IV. REPORTING REQUIREMENTS 7
V. PROPOSAL SPECIFICATIONS 7
A. Proposal Deadline. 8
B. Required Attachments and Enclosures. 8
C. Public Record. 9
D. Withdrawal/Irrevocability of Responses. 9
E. Waiver/Cure of Minor Informalities, Errors and Omissions. 9
F. Communications with PRIM. 10
G. Questions Relating to this RFP. 10
H. Incurring Costs 10
I. Rejection of Proposals. 11
VI. SELECTION PROCESS 11
A. Non-Qualifying Proposals. 11
B. Selection of Finalists. 11
C. Selection of Investment Managers. 11
VII. TENTATIVE TIME TABLE 12
VIII. MINIMUM CRITERIA 13
IX. SELECTION CRITERIA. 14
X. QUESTIONnaire 17
XI. FEE PROPOSAL 39
XII. REPRESENTATIONS AND WARRANTIES 40
XIII. Exhibits 42
A. PRIM Asset allocation & Investment managers. 44
B. sample investment management agreement 50
C. disclosure forms. 70
D. CH 32 OF THE MASSACHUSETTS GENERAL CONFLICT OF INTEREST LAW………………………………………………………… 74
E. PRIM Investment policy. 75
f. prim eti policy. 76
G. Chapter 204 of the acts of 2010………………………………………………………………………………………………………………………. 78
H. Equity and Fixed income manager performance spreadsheet. 79
I. real estate Excel performance spreadsheet 80
J. alternative investment Excel performance spreadsheet. 81
Pension Reserves Investment Management Board
REQUEST FOR PROPOSALS
COMMONWEALTH OF MASSACHUSETTS BASED
ECONOMICALLY TARGETED INVESTMENTS (ETI) PROGRAM
INVESTMENT MANAGEMENT SERVICES
I. INTRODUCTION.
The Massachusetts Pension Reserves Investment Management (PRIM) Board is soliciting proposals from firms interested in providing investment management services for the Board’s Commonwealth of Massachusetts Based Economically Targeted Investments Program. This solicitation will also be used to identify firms capable of implementing the requirements of the Economic Development Reorganization Act, in accordance with Section 171 of Chapter 240 of the Acts of 2010, which states that if reasonably possible, PRIM shall invest a minimum of $25,000,000 and a maximum of $50,000,000 in banks or financial institutions which make capital available to small businesses. More detailed descriptions of these services are set forth under the heading "SCOPE OF SERVICES".
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 assets of the State Employees' and Teachers' Retirement Systems as well as assets of other 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 October 31, 2010, the PRIT Fund had assets of approximately $46.8 billion. PRIT funds are generally invested with a longer-term perspective and higher target returns than most retirement systems. The Fund was originally established to address the unfunded liability of the pension system. The Massachusetts State Teachers’ and Employees’ Retirement Systems Trust Fund (“MASTERS”) merged into the PRIT Fund as of December 31, 1996.
The nine-member PRIM Board is chaired by the State Treasurer and Receiver-General of the Commonwealth, Timothy P. Cahill. 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, Administration, Audit and Real Estate and Timber) to provide a broader range of input to the Board on an informal basis. These committees are generally comprised of two or three Board members and private citizens with investment or business expertise. PRIM's investment managers deal primarily with the staff and Investment Committee. All policies and investments are ultimately approved by the Board.
B. PRIM’s Advisors.
Outside advisors 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. Hewitt EnnisKnupp (formerly known as EnnisKnupp & Associates, Inc.) is PRIM's general consultant and hedge fund consultant, Callan Associates provide real estate and timber consulting services, and Hamilton Lane is the private equity consultant. KPMG is the Fund’s auditor. In addition, KPMG is the Real Estate, Hedge Funds and Timber auditor. Deloitte and Touche is PRIM’s tax advisor. BNY Mellon 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.
Exhibit A includes a description of PRIM’s asset allocation as October 31, 2010.
D. Tobacco and Sudan and Iran Divestiture
On October 7, 1997, the Massachusetts legislature enacted, and the Governor signed into law, Chapter 199 of the Acts of 1997, which forbids the PRIT Fund from purchasing securities “of any company which 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. PRIM provides investment managers with a quarterly listing of these restricted securities.
On November 2, 2007, the Massachusetts legislature enacted, and the Governor signed into law, Chapter 151 of the Acts of 2007, which forbids the PRIT Fund from purchasing the securities of companies determined to be doing business in the Sudan. The legislation required the PRIT fund to divest itself of all such securities within 12 months. PRIM provides investment managers with a quarterly listing of these restricted securities.
On August 4, 2010, the Massachusetts legislature enacted, and the Governor signed into law, Chapter 232 of the Acts of 2010, which forbids the PRIT Fund from purchasing the securities of companies determined to be doing business in Iran. The legislation requires the PRIT fund to divest itself of all such securities within 12 months. PRIM intends to provide investment managers with a quarterly listing of these restricted securities.
E. Additional Information
Please refer to PRIMs website at to obtain additional information about the PRIM Board, including the PRIM Boards Operating Trust Agreement.
III. SCOPE OF SERVICES.
In August 2003, the PRIM Board adopted a Commonwealth of Massachusetts Based Economically Targeted Investments (ETI) policy. As part of this, PRIM recognizes its obligations and responsibility, under Massachusetts law, to seek out investment opportunities that will benefit the economic climate of the Commonwealth as a whole, provided that such investments are consistent with the Board’s obligations to the members and beneficiaries of its participating retirement systems. Since the McKinsey & Company performed a study in this area and the new policy was adopted, PRIM Staff has worked hard to implement the ETI program.
Additionally, the PRIM Board intends to use the ETI RFP to search for suitable investment managers to comply with the requirements of the Economic Development Reorganization Act, Chapter 240 of the Acts of 2010, which was signed into law on August 5, 2010. Section 171 of the Economic Development Reorganization Act specifically directs the PRIM Board to invest $25 million to $50 million in banks or financial institutions that would, in turn, make small business loans in Massachusetts. Please see Exhibit G for details on Chapter 240 of the Acts of 2010.
In total the ETI program has committed capital of $290 million in a well-diversified portfolio of fixed income, real estate, and alternative investments. Although the program is in its early stages, the economic impact to Massachusetts includes the participation in the issuance of over 1,600 mortgages to low-moderate income home buyers, 28 SBA Loans, the current development of several properties in Massachusetts, and the creation of over 3,600 jobs. These developments also include the residual benefits of the employment of construction workers and vendors, which have a positive impact to the Massachusetts economy. Further development projects are expected in Massachusetts. A summary of the program is described below.
[pic]
ETI Allocation as of 9/30/2010
IV. REPORTING REQUIREMENTS.
PRIM will require that the manager or managers selected agree to appropriate reporting requirements, which are attached to this RFP as Exhibit B. Each firm responding to this RFP shall be required to state under the Representations and Warranties, set forth in Section XII hereof, that it will agree to the provisions set forth in Exhibit B.
V. PROPOSAL SPECIFICATIONS.
A. Proposal Deadline.
The completed proposal, which must include all attachments, must be received electronically via e-mail by Ken E. Anadu at kanadu@ by 3:00 PM EST on Friday, January 28, 2011 (the “Proposal Deadline”) to PRIM. Any Proposal received after the Proposal Deadline will not be considered. In addition, an original and one hard copy of the Proposal should be sent to and received by Friday, January 28, 2011 to PRIM as follows:
Mr. Ken E. Anadu
Investment Analyst
Pension Reserves Investment Management Board
84 State Street, 2nd Floor
Boston, Massachusetts 02109
All electronic documents submitted must be 10MB or smaller in size. If necessary, the respondent will break the RFP submission into multiple emails to ensure that the size requirement is met. The respondent is responsible for ensuring that a complete electronic RFP response is received prior to the Proposal Deadline.
Copies of this RFP can also be obtained electronically through the PRIM Board website at or be obtained via e-mail by requesting a copy from kanadu@.
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.
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 must be accompanied by an original and one (1) copy (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) an executive summary of the firms proposal; (b) the firm name, address and telephone/fax numbers; (c) the client contact; (d) the title or position which the signer of the cover letter holds in the firm; and (e) 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. YOUR SIGNATURE IS CONSIDERED BINDING, AND A SIGNED REPRESENTATIONS AND WARRANTIES MUST ACCOMPANY YOUR SUBMISSION OR IT MAY NOT BE PROCESSED.
3. Disclosure Statement. Attached to this RFP as Exhibit C are two Disclosure Statements, one for PRIM and one for PERAC. Each firm submitting a Proposal must complete the two disclosure forms and submit as an attachment to the cover letter referenced in (1) above. YOU MUST COMPLETE BOTH PRIM AND PERAC DISCLOSURE FORMS OR YOUR SUBMISSION MAY NOT BE PROCESSED.
4. Fee Proposal. The original and one copy of the fee proposals (one copy must be unbound and ready to photocopy) and one copy sent via e-mail of the proposing firm, on the forms contained in Section XI hereof (the “Fee Proposals”) must be placed in a separate, sealed envelope, clearly identified on the outside as “Fee Proposal submitted by (COMPANY NAME).”
3. Any additional material must be submitted separate from the response.
C. Public Record.
In accordance with Chapter 66, Section 10 and Chapter 4 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. However, please note Section 23 of chapter 32 of the General Laws as most recently amended by Section 3 of chapter 502 of the Acts of 2002, was recently further amended by adding after subdivision (5), the following subdivision:
(6) Confidentiality of certain records. Any documentary material or data made or received by any person of the state investment (PRIM) board, which consists of trade secrets or commercial or financial information that relates to the investment of public trust or retirement funds, shall not be disclosed to the public if disclosure is likely to impair the government's ability to obtain such information in the future or is likely to cause substantial harm to the competitive position of the person or entity from whom the information was obtained. The provisions of the open meeting law shall not apply to the PRIM Board when it is discussing the information described in this paragraph. This subdivision shall apply to any request for information covered by this subdivision for which no disclosure has been made by the effective date of this subdivision.
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 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.
F. Communications with PRIM.
PRIM’s Procurement Officer for this RFP is:
Mr. Ken E. Anadu - Investment Analyst
Pension Reserves Investment Management Board
84 State Street, Suite 250
Boston, Massachusetts 02109
Telephone: (617) 946-8409
Facsimile: (617) 946-8472
kanadu@
As of December 13, 2010, 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 investment managers, but any contact made by such firms with persons other than the Procurement Officer must be limited to that business, and must not relate to this RFP. In addition, firms which intend to submit a Proposal should not discuss this RFP with any employee of PRIM’s custodian, other PRIM managers, consultants, or PRIM’s legal counsel or other advisors. FAILURE TO OBSERVE THIS RULE IS GROUNDS FOR DISQUALIFICATION.
G. Questions Relating to this RFP.
All questions concerning this RFP, and requests for the complete listing of questions and answers, must be received by the Procurement Officer by 3:00PM EST on Monday, January 10, 2011 (the "Question Deadline) via e-mail. 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 or requests for the complete listing of questions and answers, 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.
PRIM reserves the right to reject any non-qualifying Proposal, as well as the right to reject all Proposals submitted under this request for proposal and to cancel and rescind the procurement for any reason or for no reason.
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.
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/Real Estate Committee or its representative, as well as 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 to serve as investment manager to PRIM.
C. Selection of Investment Managers.
A member of the Search Committee may make a due diligence site visit to the finalists' offices. The Search Committee shall then rank the finalists and make its recommendations for selecting an investment manager to the PRIM Investment/Real Estate Committee and the PRIM Board.
The finalists selected by the Search Committee may be required to make an oral presentation to the Investment/Real Estate Committee, the PRIM Board, or both. The Investment/Real Estate 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 investment management services to PRIM. The engagement will be awarded by the PRIM Board.
VII. TENTATIVE TIME TABLE.
The following is the tentative time schedule for PRIM’s search for firms to provide investment management services. All dates are subject to modification by PRIM with notice.
Issuance of RFP: December 13, 2010
RFP Question Deadline: January 10, 2011
(Firm) 3:00 PM EST
RFP Response Deadline: January 28, 2011
(Firm) 3:00 PM EST
Notification of Finalists: February 23, 2011
(Tentative)
Search Committee Week of February 28, 2011
Interviews**:
Investment Committee/ March 22, 2011/
Real Estate Committee March 23, 2011
Interviews**:
PRIM Board Meeting**: April 5, 2011
(Tentative)
Projected May 1, 2011
Commencement Date:
** If selected, please plan to be in Boston for interviews by the Search Committee, Investment/Real Estate Committee, and the Board on these specific dates.
VIII. MINIMUM CRITERIA.
A Proposer must meet the following minimum qualifications to be given further consideration in PRIM’s search for an investment manager(s). Failure of a firm to meet the minimum qualifications applicable to the investment management services for which it is submitting a Proposal will result in the Proposal’s immediate rejection.
Basic Minimum Qualifications.
All firms submitting Proposals must clearly demonstrate that they meet the Board’s ETI criteria. The basic minimum qualifications must also be met by all firms responding to meet the requirements of the Economic Development Reorganization Act. Please provide a detailed response to the questions below.
1. The proposing firm must demonstrate that their investments target risk-adjusted, market-rate returns and provide net returns equivalent to or higher than other available investments, at commensurate levels of risk. Economic or social benefits will not justify a lower return on any PRIM investment.
2. The proposing firm must demonstrate that their firm is an experienced, capable, and qualified discretionary investment manager.
3. The proposing firm must demonstrate that their investments will target a “capital gap” where there are likely to be underserved markets.
4. The proposing firm must demonstrate that their firm is capable of tracking investment performance and the collateral benefits of their investments.
5. The proposing firm must demonstrate that 50% of PRIM’s investment in the portfolio will be invested within the Commonwealth of Massachusetts.
6. The proposing firm must be SEC-registered or exempt from registration with the nature of the exemption provided. The firm must submit its full Form ADV (Parts I and II).
7. The proposing firm must have an investment in or a commitment to the proposed product from at least one client as of December 31, 2010. Firms responding to meet the requirements of the Economic Development Reorganization Act only, must have demonstrated experience in making capital available to small businesses as of December 31, 2010.
8. The proposing firm must be willing to include the attached representations and warranties in the contract if selected as the manager to the PRIM Board.
9. The proposing firm must be proposing a long-only strategy.
IX. SELECTION CRITERIA.
PRIM will apply the following criteria in the selection of an investment manager(s). 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 move to the next stage of the Selection Process and recommend the retention of an investment manager to the Investment/Real Estate Committee. For a more detailed description of the Selection Process, see Section VI hereof.
Basic Selection Criteria Applicable to all Proposing Firms
1. Ability to meet the PRIM Board’s Commonwealth of Massachusetts Based ETI program criteria.
a. Investments must target risk-adjusted, market-rate returns and provide net returns equivalent to or higher than other available investments, at commensurate levels of risk. Economic or social benefits will not justify a lower return on any PRIM investment.
b. Investments must be placed with an experienced, capable, and qualified discretionary investment manager.
c. Investments must target a “capital gap” where there are likely to be underserved markets.
d. Investment managers must be capable of tracking investment performance and the collateral benefits of their investments.
e. Investment managers must demonstrate that 50% of PRIM’s investment in the portfolio will be invested within the Commonwealth of Massachusetts.
2. Stability and General Experience of the Firm.
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; and the expected financial stability of the firm.
b. Experience of the firm in providing investment management services to similar institutional investors, as measured by the firm's history of providing such services; and the similarity of a firm's clients to PRIM.
c. Adverse organizational issues, such as the existence of litigation or other investigations; and the existence of financial problems.
3. Quality, Stability, Depth and Experience of Personnel.
a. Experience of portfolio manager(s) in providing similar services to similar institutional investors, as measured by the length of time the portfolio manager(s) has served as a portfolio manager to such investors; demonstrated expertise in providing such services to other such investors; demonstrated organizational skills, and demonstrated ability to interact with both the staff and oversight body of pension funds.
b. Experience of professionals in providing investment management services as measured by the length of time dedicated support staff have provided such services to similar institutional investors.
c. Depth of personnel, as measured by the firm's account/portfolio manager and account/investment management personnel ratios; and back-up procedures for providing services to PRIM in the absence of the portfolio manager(s).
d. Stability of the firm's professional base, as measured by personnel turnover since December 31, 2007.
4. Client Relations and References
a. Stability of the firm's client base, as measured by the number of accounts gained or lost since December 31, 2007.
b. Quality of references from clients, as measured by responses relating to quality and responsiveness of investment management services; knowledge and accessibility of the portfolio manager(s); and the quality of client services.
5. Philosophy/Process
a. Philosophy and portfolio characteristics that are consistent with the overall structural objectives of the asset class as measured by the investment characteristics of the portfolio.
b. Defined philosophy and consistent process implementation, as measured by return consistency, distinct buy/sell disciplines, portfolio construction methodology, and the implementation of risk controls.
6. Performance and Fees
a. The total cost of performing investment advisory services as measured by the Fee Proposal.
b. The historical performance of the product as measured by its cumulative and annual performance compared to an appropriate index.
X. QUESTIONNAIRE
COMMONWEALTH OF MASSACHUSETTS BASED
ECONOMICALLY TARGETED INVESTMENT (ETI) PROGRAM
INVESTMENT MANAGEMENT SERVICES
PRODUCT NAME:
ASSET CLASS: _________________________
FIRM NAME:
ADDRESS:
TELEPHONE #:
FACSIMILE #:
E-MAIL ADDRESS:
CLIENT CONTACT:
SIGNED:
Name (print):
Title:
Date:
A. SPECIFIC COMMONWEALTH OF MASSACHUSETTS BASED ETI CRITERIA
1. What Asset class is appropriate for your product? (Please check off)
Equity
Fixed Income*
Real Estate
Private Equity (Venture Capital/Buyout)
Timber
*for the purposes of classification, investment managers who are responding to meet the requirements of the Economic Development Reorganization Act fall under fixed income.
2. Demonstrate that your investments target risk-adjusted, market-rate returns and provide net returns equivalent to or higher than other available investments, at commensurate levels of risk. Economic or social benefits will not justify a lower return on any PRIM investment.
3. Demonstrate that your firm is an experienced, capable, and qualified discretionary investment manager.
4. Demonstrate that your investments will target a “capital gap” where there are likely to be underserved markets.
5. Demonstrate that your firm is capable of tracking investment performance and the collateral benefits of your investments.
6. Demonstrate that your firm will invest over 50% of PRIM’s investment in the portfolio in the Commonwealth of Massachusetts.
B. COMPANY BACKGROUND AND GENERAL DESCRIPTION
1. Indicate your firm’s fiduciary classification:
Bank
Insurance Company
Registered Investment Advisor (Investment Advisors Act of 1940)
Affiliate of Fiduciary
(Name and Classification):
Other:
2. Give a brief history of the firm including:
a. the month and year of SEC 1940 Act registration,
b. the month and year the firm began managing proposed product,
c. the month and year the firm began managing proposed product for U.S. tax-exempt clients,
d. the month and year the proposed product was introduced.
3. Describe the ownership of the firm, including but not limited to:
a. ownership structure,
b. affiliated companies or joint ventures,
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.
4. Provide an organizational chart diagramming the relationships between the professional staff as well as the parent-subsidiary, affiliate, or joint venture entities.
5. List the total number of persons in the subject product employed by discipline.
Total
Portfolio Managers
Research Analysts
Economists
Marketing
Trading
Administration
Client Service
Other (Specify)
Total
6. Describe the levels (U.S. dollar amounts) of coverage for SEC-required (17g-1) fidelity bonds, errors and omissions coverage and any other fiduciary coverage, which your firm carries. List the insurance carriers supplying the coverage.
7. Over the past five years, has your organization or any of its affiliates or parent, or any officer or principal been involved in any business litigation, regulatory or legal proceedings? If so, provide a detailed explanation and indicate the current status. Also provide complete Form ADV (Parts I and II).
8. Describe in detail any potential conflicts of interest your firm may have in the management of this account. Include any activities of affiliated or parent organizations, brokerage activities, investment banking activities, or any past or current relationships with PRIM Board members and investment staff. Include any other pertinent activities, actions, or relationships not specifically outlined in this question. Also disclose any business relationship with PRIM’s consultants, which include Hewitt EnnisKnupp (formerly known as EnnisKnupp & Associates, Inc.), Callan Associates, and Hamilton Lane.
9. Describe all outside marketing/sales services (including product design and development) for which your firm has contracted over the last three years for the marketing of your investment services to the institutional, tax-exempt market. Specify any such arrangements as they relate to the product being proposed. Indicate whether the fees paid for such services are charged to client portfolio assets.
10. Describe the material developments in your organization (changes in ownership, personnel, business, etc.) over the past three years in detail.
11. Do you have a plan and arrangements in place for an alternative worksite should your facilities become inoperative because of fire, earthquake, etc. Describe.
12. Describe your firm’s overall business strengths, weaknesses and uniqueness.
C. ASSETS UNDER MANAGEMENT
12/31 12/31 12/31 12/31 12/31 12/31
2005 2006 2007 2008 2009 2010
1. (a) Total assets under management
(all products) ($millions)
(b) Total institutional (taxable & non-taxable)
assets in proposed product
($ millions)
(c) Total assets (retail & institutional)
managed in the proposed product ($ millions)
(e) Total assets managed
in the proposed product
for U.S. tax-exempt clients
in separate accounts ($ millions)
Accounts
(f) Total U.S. tax exempt assets in
the proposed product in commingled
funds ($ millions)
2. Please list 5 largest U.S. tax-exempt accounts currently managed, including all public and ERISA fund clients, invested in the proposed product.
Name Date of Inception Market Value (12/31/08)
3. List all clients and asset amounts gained in the subject product over the past three years as of December 31, 2010.
4. List all clients and asset amounts lost in the subject product over the past three years as of December 31, 2010.
5. What is the minimum account size you will accept on a separate account basis?
6. Describe whether or not there have been any issues with respect to market timing in this or other commingled funds offered by your firm. Describe how market timing is prevented in the commingled fund.
7. Describe the objectives of your firm with respect to future growth in the product, commenting on:
• Additional resources for portfolio management, research, trading, client service and tools/models to enhance the investment process or manage growth; and,
• Size limitations with respect to assets under management in the product. How did you arrive at those asset limits? Are companion retail mutual fund assets and assets in this category from broader mandates included in these limits? Describe.
8. Identify three 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.
9. Provide the client name, address, phone number, contact name, title, and account type (e.g. defined benefit, defined contribution, endowment) of three 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.
10. What is the optimum total asset size and number of client accounts for this investment product? Why? At what total asset size for the subject product do you intend to cease accepting more business? What advantages and disadvantages does your current size present to achieving superior performance results in the future.
D. PEOPLE/ORGANIZATION
1. How many portfolio managers are employed in the product? How many research analysts support this product? Please specify locations, state the number of accounts each manages and include the dollar value of assets under management. Indicate those associated with U.S. tax-exempt accounts.
2. Provide a list of the professionals involved in the subject product in the manner listed below:
PORTFOLIO MANAGEMENT
| |Title/ |Yrs |Yrs @ |Degrees/ |Sponsoring |
|Name |Responsibilities |Exp |Firm |Designations |Body/School |
| | | | | | |
| | | | | | |
RESEARCH
| |Title/ |Yrs |Yrs @ |Degrees/ |Sponsoring |
|Name |Responsibilities |Exp |Firm |Designations |Body/School |
| | | | | | |
| | | | | | |
TRADING
| |Title/ |Yrs |Yrs @ |Degrees/ |Sponsoring |
|Name |Responsibilities |Exp |Firm |Designations |Body/School |
| | | | | | |
| | | | | | |
3. Describe your internal training procedures for portfolio managers, traders, and research analysts.
4. Describe the background of professionals directly involved in the management of the product.
Are they brought in from the outside or promoted to their positions from within the organization?
Is their prior experience in portfolio management/research/trading, industry, consulting, or other business or technical areas?
What sort of ongoing educational programs (for example, the CFA program) are encouraged or required?
5. Describe the job qualifications required by your firm when hiring: portfolio managers, traders, research analysts, and system professionals.
6. What personnel or organizational improvements are planned over the next years?
7. Provide biographies of no longer than one page on each of the persons listed in Question C.2. Please include prior employment history.
8. 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.
9. 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?
Identify the percentage of compensation which is:
➢ Base salary
➢ Performance bonus
➢ Equity incentives
➢ Other
Do you offer direct ownership, phantom stock, profit sharing, and/or performance bonus?
Who is eligible to participate?
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.
How does your compensation structure/levels compare with other firms in the industry?
10. Discuss the causes and impact of any turnover (departures or hiring/promotions) of any professionals directly involved in the product you have experienced in the past five years. How long has the team been together? Indicate when and why any professional dedicated to the 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 and years with the firm and who replaced them.
JOINED
|Date |Name/Title |Responsibilities |
| | | |
| | | |
| | | |
DEPARTED
| | | |Yrs @ Firm | |Replaced by |
|Date |Name/Title |Responsibilities | |Reason for leaving |(name/title) |
| | | | | | |
| | | | | | |
| | | | | | |
E. INVESTMENT PHILOSOPHY, POLICY AND PROCESS
1. Describe your firm’s investment philosophy for the proposed product. Why do you believe this philosophy will be successful in the future? Provide any evidence or research that would support this belief. How has this philosophy changed over time?
2. What benchmark is most appropriate? How important is benchmark-tracking error? What has been the range of historical tracking error for the subject product?
3. Describe your buy/hold/sell disciplines. What are the process, timing, and factors you evaluate?
4. Describe your portfolio construction process.
➢ What is the universe from which securities are selected?
➢ What types of securities are used?
➢ How many issues are typically contained in a portfolio?
➢ How are individual sector and security weightings determined?
➢ Discuss the quantitative and qualitative processes utilized.
➢ Who has the ultimate decision making authority and accountability?
4. What is your firm's definition of risk with respect to this product? If more than one, specify each with its percentage of importance. Describe how you monitor and manage risks such as: residual risk versus the benchmark, common factor analysis, security, sector, and industry weightings, and, value at risk.
5. Indicate how much cash is generally held in the portfolio. Do you use cash as a method of risk control?
6. Describe any risk measurement models used and how this analysis is incorporated in the portfolio management process
7. How do you monitor the product’s adherence to its investment style and process? Specify who is responsible.
8. Provide your internal guidelines for the subject product under a fully discretionary basis. Include the following: sector and security exposures, types of securities used, market capitalization ranges by sector and security, and expected level of annualized outperformance over three to five years relative to the index chosen.
9. Describe internal and external research involved in the management of the product.
10. Describe the quantitative models and tools you utilize for research, portfolio construction and trading. What enhancements are being contemplated?
11. Describe what circumstances or market conditions would favor the subject product’s strategy? When can it be expected to be out of phase or be unrewarded?
12. Are you able to provide accurate, audited asset and transaction statements within 2-3 weeks of month's end? Explain.
13. What unique attributes does your firm or your product have which distinguish it from its competitors in the fulfillment of this assignment?
14. Describe how your product differentiates itself from those of PRIM’s current managers. What role would your portfolio play in PRIM’s ETI program?
Additional Questions for Equity and Fixed Income Managers (Questions 16-18)
15. Describe your firm’s trading capabilities related to this product. Provide a description of your trading platform, including systems (proprietary and off-the-shelf) for execution and processing.
Describe the allocation objectives and implementation procedures across all accounts. What is the process by which trades are allocated across separate accounts as opposed to commingled accounts? Please describe both the tactic of allocating the initial trade as well as the strategy of building positions across accounts.
What has been the product’s level of turnover?
Is trading segmented by investment product platform?
How many traders are there and what is their experience?
Describe the trading systems and strategies you use, and indicate any enhancements your firm is contemplating.
What steps have you taken to automate the trade flow process? What areas are still handled manually?
How do you leverage your infrastructure to ensure firm-wide collaboration in execution (broker/dealer relationships) and capital market conditions (liquidity)? How does your firm manage to and monitor market liquidity?
Describe how you measure trading costs (commissions and market impact).
If your firm is affiliated with a broker/dealer, describe whether or not you trade through this affiliated brokerage.
Discuss your internal monitoring process for final price determination and trade order management. Do you have dedicated committees overseeing these functions? If so, please list the members.
What processes do you have in place for ensuring pre- and post-trade guideline compliance? What functions are automated? What process do you have in place for human verification? Who signs off on final trading?
Please describe the oversight procedures that would minimize the risk of traders acting outside of their given latitude in executing trades.
16. What is the maximum percentage of total annual security trades that clients can direct without impeding your overall investment performance? Explain.
17. If you have soft dollar relationships with broker-dealers, please disclose the soft dollar policy and when it was last reviewed. Please also provide the percentage of trades executed tied to soft dollar relationships. Provide a list of resources funded by soft dollars that would normally be funded with hard dollars.
Additional Questions for Managers responding to meet the requirements of the Economic Development Reorganization Act (Questions 19-21)
19. Please describe your experience making capital available to small businesses. This could include: working capital and expansion loans to businesses both secured and non-secured. Lines of credit, capital expenditure loans, term loans, project finance loans, grants, loan guarantees and mezzanine and structured finance loans. In your response, please detail the following:-
➢ Length of time your firm has been providing capital to small businesses.
➢ Total capital (in USD) you have made available to small businesses.
➢ Vehicles you have used to facilitate these loans
20. Please describe if your experience includes providing capital directly, via a subsidiary or both.
➢ What method of implementation do you envision using to put the Commonwealth of Massachusetts Economic Development Reorganization Acts Dollars to use?
21. What metrics do you use to evaluate the performance and success of your investments in these small business loan instruments?
➢ Why do you feel the aforementioned metrics are relevant?
➢ What benchmark do you suggest we compare your product to and why?
Additional Questions for Real Estate Managers (Questions 22-35)
22. Please provide a basic description of the product identifying whether it is a separate account, closed or open ended fund and what quadrant of the real estate investment universe it falls into (i.e.. public, private, debt, equity or a hybrid of the four).
23. Describe your organizational approach and procedures relative to new investments, including your underwriting procedures and internal review and approval process.
24. Describe your acquisition process, including sourcing for new properties.
25. Provide your firm’s Transaction History with actual or projected IRR (please label which), including the total number or purchase transactions accomplished over the past 5 years. Specifically indicate for the transactions listed the number sourced directly or through brokers or other third parties for which a fee or other compensation was paid by either the buyer or the seller.
26. Specify the total capital committed to your firm but un-invested and available for investment. Include the client, total assets managed, strategy, and specify if it is discretionary or non-discretionary.
27. Describe how investments are allocated among your clients where applicable and if any clients or funds have any preference or priority. What type of allocation reports do you provide clients?
28. Describe your asset management approach and process.
29. Describe your internal and external valuation processes. If external valuation is appraisal based, how are appraisal firms selected? Do you require a MAI designated appraiser? How often are internal valuations conducted? Describe your internal valuation methodology and process.
30. Provide your disposition history for over the past 5 years for all investments that have been both acquired and sold. Include investment strategy, property type, date acquired, date sold, net disposition price, asset cost, net gain, and Actual IRR before fees.
31. Describe your firm’s property management approach (where applicable) and philosophy. Include information about whether you use affiliates or subsidiaries for property management and leasing.
32. Please identify and describe the types of investments your firm sees as most attractive today on a risk-adjusted basis. Explain how these opportunities are consistent with your firm’s prior investment experience, capabilities, and expertise.
33. Please identify any specific investment criteria you believe appropriate for implementing this mandate, such as acquisition capitalization rates, minimum cash-on-cash or distributable cash requirements, minimum total return requirements, targeted holding periods, and any risk mitigation or risk management policies such as minimum leasing or rollover exposure the first three years of ownership.
34. Describe your development process where applicable. What components are handled in house and what is outsourced? Explain how this process is consistent with your firm’s prior investment experience, capabilities, and expertise.
35. Describe your use of joint ventures.
Additional Questions for Private Equity Managers (Venture Capital and Buyout) are included in the Excel spreadsheet in Exhibit I.
F. OPERATIONS/BACK-OFFICE
1. How many back office operations professionals support the subject product? Please specify locations.
2. Provide a list of the professionals involved in the subject product in the manner listed below:
BACK OFFICE OPERATIONS
| |Title/ |Yrs |Yrs @ |Degrees/ |Sponsoring |
|Name |Responsibilities |Exp |Firm |Designations |Body/School |
| | | | | | |
| | | | | | |
3. Describe your internal training procedures for professionals on the back office operations team.
4. Describe the background of operations professionals that support the product.
Are they brought in from the outside or promoted to their positions from within the organization?
Is their prior experience in operations or other business or technical areas?
What sort of ongoing education programs (for example, CPA, CFA) are encouraged or required?
5. Describe the job qualifications required by your firm when hiring operations professionals.
6. What personnel or organizational improvements are planned over the next years?
7. Provide biographies of no longer than one page on each of the persons listed in Question 2. Please include prior employment history.
8. Provide an organizational chart that diagrams the different operations functions dedicated to the product area. Professionals should be identified over their areas of responsibility.
9. Describe the compensation and incentive program for operations professionals directly involved in the product. How are they evaluated and rewarded? What incentives are provided to attract and retain superior individuals?
Identify the percentage of compensation which is:
➢ Base salary
➢ Performance bonus
➢ Equity incentives
➢ Other
Do you offer direct ownership, phantom stock, profit sharing, and/or performance bonus?
Who is eligible to participate?
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.
How does your compensation structure/levels compare with other firms in the industry?
10. Discuss the causes and impact of any turnover (departures or hiring/promotions) of any operations professionals directly involved in the product you have experienced in the past five years. How long has the team been together? Indicate when and why any operations professional dedicated to the 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 and years with the firm and who replaced them.
JOINED
|Date |Name/Title |Responsibilities |
| | | |
| | | |
| | | |
DEPARTED
| | | |Yrs @ Firm | |Replaced by |
|Date |Name/Title |Responsibilities | |Reason for leaving |(name/title) |
| | | | | | |
| | | | | | |
| | | | | | |
G. COMPLIANCE/INTERNAL CONTROL STRUCTURE
1. Provide a detailed summary of your firm’s compliance regime. Identify senior or key personnel in the firm’s compliance process.
2. Does your firm maintain a code of ethics? If so, please attach.
3. During the past five years, has the firm been subject to any governmental regulatory or law enforcement agency’s investigation, examination, or other proceeding directly involving the firm, its owners, or employees other than such examination or other proceedings as are routinely conducted in the ordinary course of the firm’s business?
4. During the past five years, has the firm been subject to any litigation alleging fraud, breach of fiduciary duty, or other willful misconduct?
5. Provide a detailed summary of your firm’s internal control structure. Does the firm conduct periodic risk assessment? Provide a copy of SAS 70 if available, or other internal control review documentation, preferably prepared by an independent third party.
6. Provide copies of the firm’s most recent audited financial statements and auditor’s management letter.
7. Has your firm ever violated a client guideline? If so, please describe the violation and the resolution.
H. PERFORMANCE
PLEASE NOTE: FILL OUT ONLY ONE OF THE FOLLOWING SECTIONS WITHIN THE PERFORMANCE SECTION. Simulated results are not acceptable.
Section I applies to Equity and Fixed Income Managers (This includes managers responding to meet the requirements of the Economic Development Reorganization Act)
Section II applies to Real Estate Managers
Section III applies to Private Equity Managers (Venture Capital and Buyout)
SECTION I
TO BE FILLED OUT ONLY BY MANAGERS PROPOSING EQUITY OR FIXED INCOME PRODUCTS (This includes managers responding to meet the requirements of the Economic Development Reorganization Act)
1. a. Provide annual performance on a total return basis GROSS OF ALL FEES AND MANAGEMENT COSTS from inception for the subject product. Indicate if returns are net or gross of custody costs. Use Global Investment Performance Standards (GIPS) or, if different, indicate explicitly how they differ. Indicate whether the subject performance is the composite performance or that of the commingled account vehicle. Please complete the both tables below. YOU MUST COMPLETE THE 2 TABLES BELOW OR YOUR SUBMISSION MAY NOT BE PROCESSED.
IN ADDITION, PLEASE ENTER THIS INFORMATION IN THE EXCEL SPREADSHEET (EXHIBIT G) AND SUBMIT IT WITH YOUR RESPONSE. PLEASE DO NOT CHANGE THE SPREADSHEET FORMAT.
TABLE#1 Subject Product Performance
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 2001
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Total Return ___%___%___%___%___%___%___%___%___%___%___%___%
Index ___%___%___%___%___%___%___%___%___%___%___%___%
Difference ___%___%___%___%___%___%___%___%___%___%___%___%
TABLE #2
1 Year 3 Years 5 Years 10 Years
Annualized Ended Ended Ended Ended
Returns 12/31/10 12/31/10 12/31/10 12/31/10
Return _______% _______% _______% _______%
Index _______% _______% _______% _______%
Difference _______% _______% _______% _______%
Provide peer group rankings on an annualized and calendar year basis for the performance listed above. Please also provide a description of the peer group.
Provide underlying data for performance given in question F1(a), if applicable:
| |2010 |2009 |2008 |2007 |2006 |2005 |2004 |
|NPI Office Sub-index | | | | | | | |
|Core Retail | | | | | | | |
|NPI Retail Sub-index | | | | | | | |
| Industrial | | | | | | | |
|NPI Industrial | | | | | | | |
|Sub-index | | | | | | | |
|Multifamily | | | | | | | |
|NPI Multifamily | | | | | | | |
|Sub-index | | | | | | | |
|Composite | | | | | | | |
|NPI or Other | | | | | | | |
1. All Properties/Investments Under Management.
| |Rolling One |Rolling 3|Rolling 5|Rolling 10 Year|Historical |Inception Date |NAV 12/31/09 |
| |Year |Year |Year | | | | |
|NPI Office Sub-index | | | | | | | |
|Retail | | | | | | | |
|NPI Retail Sub-index | | | | | | | |
|Industrial | | | | | | | |
|NPI Industrial | | | | | | | |
|Sub-index | | | | | | | |
| Multifamily | | | | | | | |
|NPI Multifamily | | | | | | | |
|Sub-index | | | | | | | |
|Composite | | | | | | | |
|NPI or Other | | | | | | | |
Please customize investment types where applicable (i.e. debt, public market vehicles etc.)
SECTION III
TO BE FILLED OUT ONLY BY MANAGERS PROPOSING PRIVATE EQUITY PRODUCTS
PLEASE ENTER THIS INFORMATION IN THE EXCEL SPREADSHEET (EXHIBIT I) AND SUBMIT IT WITH YOUR RESPONSE. PLEASE DO NOT CHANGE THE SPREADSHEET FORMAT. PLEASE ONLY INPUT INFORMATION INTO CELLS OR COLUMNS THAT ARE HIGHLIGHTED IN BLUE.
1. Fund Overview
Please provided a summary of all of your prior funds including total fund capital commitments, vintage year, total amount funded (including fees), total amount distributed (net distributions returned), remaining market value, the number of investments made and remaining, and Net IRRs to LPs. (All numbers on this worksheet should be Net numbers)
Additionally, please complete the exhibit requesting a list of all of the Investment Professionals, including their age, start date, carry, and area of focus. Please note any Investment Professionals, Principal level or above, who have left the firm in the Departed Professionals section.
2. Portfolio Company Detail
Please provide detailed information (gross data) regarding each portfolio company in all of your prior funds. This information relates to cost and valuation of the underlying portfolio companies, data from the initial transaction, current operational performance, deal attribution, and a description of the company as well as a status update.
3. Terms
You do not need to complete this tab.
4. Commitments
Please provide a list of investors in this fund, including the amount of each investor’s commitment for your prior fund. You may consolidate all investors committing less than $10 million. Please note any investors who will not be committing to your current fund.
Additionally, please provide a detailed reference list for each of your portfolio companies as well as for each General Partner affiliated with this fund. You may include this in a separate worksheet within the Excel workbook if you wish.
I. CLIENT SERVICE
1. Which of your firm’s offices would service this account? What services would specifically be provided by which office?
2. Who will be the client service officer? How often could the person be available for client meetings? How often could the portfolio manager, chief investment officer and/or firm president be available for client meetings?
J. SAMPLE PORTFOLIO
Please submit a sample portfolio (preferably an actual portfolio) as of December 31, 2010, which would reflect the investment style of the product proposed for this account.
K. EXECUTIVE SUMMARY
Please submit an executive summary consisting of not more than 3 one-sided pages which summarize 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/Real Estate Committee in advance of any interview. Please be aware that all members of the Investment Committee/Real Estate Committee may not have read your complete Proposal, which will be evaluated by the Search Committee.
XI. FEE PROPOSAL
FIRM RFP
Once a manager has been selected, negotiations of the fee may become necessary in order to account for the size of funding, the increments of funding, and any clarification. In no case will the negotiations result in a fee which is higher than the fee contained in the proposal.
A. Proposed Fees
Asset-based Fee Schedule: basis points per annum.
Please list separate schedules for commingled/separate account management.
B. Do fees in A above include custody fees? If not, please specify.
C. Performance Fee
The PRIM Board may use a performance fee arrangement. Would your firm accept a performance fee management? If so, what is your proposed fee structure?
XII. REPRESENTATIONS AND WARRANTIES
All proposers are required to submit an executed copy of the following Representations and Warranties as an attachment to the cover letter described in Section V.B.2. of this RFP:
A. Proposer warrants that it meets, or will meet before the award of the Agreement, 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 the Agreement (unless exempt, and explanation of exemption is attached).
B. Proposer warrants that it maintains both error and omissions insurance as well as a fiduciary liability insurance providing a prudent amount of coverage for negligent acts or omissions and that such coverage will be applicable to proposer's actions under the Agreement.
C. Proposer warrants that it will not delegate its fiduciary responsibilities assumed under the Agreement.
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 Agreement.
E. Proposer warrants that it will agree to the provisions of the Agreement which are set forth in Exhibit B to this RFP.
F. Proposer warrants that it meets all of the minimum qualifications, listed below, applicable to the firm under the RFP as follows:
Please list each minimum requirement and specifically describe how your firm meets the applicable minimum qualifications specified in Section VIII. YOU MUST PROVIDE THIS INFORMATION, AS WELL AS A SIGNATURE ON THE BOTTOM OF THE DOCUMENT, OR YOUR SUBMISSION MAY NOT BE PROCESSED.
Basic Minimum Qualifications.
A Proposer must meet the following minimum qualifications to be given further consideration in PRIM’s search for an investment manager(s). Failure of a firm to meet the minimum qualifications applicable to the investment management services for which it is submitting a Proposal will result in the Proposal’s immediate rejection.
Basic Minimum Qualifications.
All firms submitting Proposals must clearly demonstrate that they meet the Board’s ETI criteria. Please provide a detailed response. The basic minimum qualifications must also be met by all firms responding to meet the requirements of the Economic Development Reorganization Act. Please provide a detailed response to the questions below:
1. The proposing firm must demonstrate that their investments target risk-adjusted, market-rate returns and provide net returns equivalent to or higher than other available investments, at commensurate levels of risk. Economic or social benefits will not justify a lower return on any PRIM investment.
2. The proposing firm must demonstrate that their firm is an experienced, capable, and qualified discretionary investment manager.
3. The proposing firm must demonstrate that their investments will target a “capital gap” where there are likely to be underserved markets.
4. The proposing firm must demonstrate that their firm is capable of tracking investment performance and the collateral benefits of their investments.
5. The proposing firm must demonstrate that their firm will invest over 50% of their portfolio in the Commonwealth of Massachusetts.
6. The proposing firm must be SEC-registered or exempt from registration with the nature of the exemption provided. The firm must submit its full Form ADV (Parts I and II).
7. The proposing firm must have an investment in or a commitment to the proposed product from at least one client as of December 31, 2010. Firms responding to meet the requirements of the Economic Development Reorganization Act only, must have demonstrated experience in making capital available to small businesses as of December 31, 2010.
8. The proposing firm must be willing to include the attached representations and warranties in the contract if selected as the manager to the PRIM Board.
9. The proposing firm must be proposing a long-only strategy.
_____________________
Name of Firm Date
_____________________
Signature Title
XIII. EXHIBITS
EXHIBIT A
PRIM Asset Allocation
PRIM Investment Managers
Pension Reserves Investment Management Board
Long Term Asset Allocation
As of October 31, 2010
|Asset Class |Long Term Target Allocation |
|Global Equity |49% |
|Core Fixed Income |13% |
|Value-Added Fixed Income |6% |
|Private Equity |10% |
|Real Estate |10% |
|Timber/Natural Resources |4% |
|Hedge Funds |8% |
Pension Reserves Investment Management Board
Current Investment Managers
Global Equity
US Domestic Equity
State Street Global Advisors (passive)
INTECH
Pacific Investment Management Company (PIMCO)
International Equity
Ballie Gifford
Marathon Asset Management, Ltd.
Mondrian Investment
Pyramis Global Advisors
State Street Global Advisors (passive)
Emerging Markets Equity
Emerging Markets Management
Grantham, Mayo, Van Otterloo &Co LLC (GMO)
T. Rowe Price
State Street Globl Advisors (passive)
Core Fixed Income
BlackRock Financial Management, Inc. (passive)
Loomis Sayles & Company, L.P.
Pacific Investment Management Company (PIMCO)
Access Captial (ETI)
Community Capital Management (ETI)
AFL-CIO HIT Fund (ETI)
Inflation Linked Bonds
BlackRock (Passive)
Value Added Fixed Income
High Yield Bonds
Fidelity Management Trust Company
Loomis Sayles & Company, L.P.
Shenkman Capital Management, Inc.
Emerging Markets Debt
Ashmore Investment Management Ltd.
Pacific Investment Management Company (PIMCO)
Bank Loans
ING
Eaton Vance
Distressed Debt
Oaktree Capital Management, LLC
Angelo, Gordon & Co. LP
Trust Company of the West
Wayzata Investment Partners
Avenue Capital
Hedge Funds
Arden
Grosvenor
K2 Advisors
PAAMCO
Rock Creek
Real Estate
JP Morgan Investment Management
TA Associates Realty
Invesco Real Estate
LaSalle Investment Management
INVESCO (REIT)
RREEF (REIT)
Urdang (REIT)
European Investors (REIT)
New Boston Fund (ETI)
Canyon Johnson Urban Funds (ETI)
Intercontinental Real Estate (ETI)
Timber/Natural Resources
Timber
Forest Investment Associates
Public Natural Resources
Jennison Associates
T. Rowe Price
Private Natural Resources
Quantum Energy Partners
Tenaska Capital Management
Denham Capital
Private Equity
Advent International
Alchemy Partners
Alta Communications
American Securities
APAX Partners & Co.
Apollo Management Co.
AustinVentures
Bain Capital
Battery Ventures
Berkshire Partners, LLC
The Blackstone Group
Boston Ventures
Bridgepoint
Brown Brothers Harriman & Co.
Candover
Carlyle Partners
Castille Ventures (ETI)
Centerbridge Capital Partners
Charles River Ventures
Charlesbank Capital Partners
Charterhouse Group
Chequers Capital
Code Hennessey & Simmons
Commonwealth Capital Ventures
CVC Capital
Cypress Merchant Banking
DLJ Merchant Banking
El Dorado Ventures
Equitable Capital Management
Essex Woodlands
Exponent Partners
First Reserve Corporation
Flagship Ventures (ETI)
Forstmann, Little & Co.
Freeman Spogli Equity Partners
Genstar Capital Partners
GTCR
Harborvest Partners
Hellman & Friedman Capital Partners
H.I.G. Capital
Highland Capital Partners
Insight Venture Partners
InterWest Partners
Joseph Littlejohn & Levy
Kelso & Company
Kohlberg Kravis Roberts& Co.
KPS Capital Partners
Landmark Equity Partners
Lexington Partners
Madison Dearborn Capital Partners
Menlo Ventures
M/C Venture Partners
Montagu Private Equity
Montreux Equity Partners
Nautic Partners
New Enterprise Associates
Nordic Capital
Odyssey Investment Partners
Olympus Growth Fund
Onex Partners
PAI Europe
Permira Europe
Polaris Venture Partners
Providence Equity Partners
Quad - C Management, Inc.
Richland Ventures
SCP Vitalife
Sherbrook Capital
Sovereign Capital Limited
Spark Capital
Spectrum Equity Partners
Summit Ventures
TA Associates/Advent
Texas Pacific Group
The Gores Group
Thoma Bravo
Thomas H. Lee Equity Partners
Tourquest Partners
TowerBrook Capital
Trident Capital
Union Square
VantagePoint Partners
Venture Capital Fund of NE
Vestar Capital Partners
Vista Equity Partners
Welsh CarsonAnderson & Stowe
Weston Presidio Capital
WestView Capital Partners
Whitney & Co.
William Blair Mezzanine Capital Fund
Willis Stein
Xenon Private Equity
EXHIBIT B
Sample Investment Management Agreement
(For Public Markets Managers)
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT, dated as of [date], is made by and between the Pension Reserves Investment Management Board ("PRIM"), as trustee of the Pension Reserves Investment Trust (“PRIT”), and [manager] (the "Manager").
Introduction. Under Massachusetts General Laws, Chapter 32, Section 23, PRIM has general supervision of the investment and reinvestment of the PRIT Fund created by Chapter 32, Section 22 of such laws. PRIT has been established for the purpose of depositing, investing and disbursing amounts set aside to meet further liabilities of various public retirement systems in Massachusetts. PRIM is responsible for the administration of PRIT and enters into this Agreement appointing the Manager as investment manager of certain assets of PRIT pursuant to its authority under Massachusetts General Laws, Chapter 32, Section 23, subdivision (2A), paragraph (e), clause (iii).
1. Appointment of the Manager as Investment Manager. PRIM hereby appoints and retains the Manager, and the Manager agrees to serve as investment manager, upon and subject to the terms hereof, beginning at the opening of business on [date] (the “Effective Date”) and continuing until this Agreement is terminated in accordance with the terms hereof. The Manager hereby accepts appointment as such investment manager and agrees to provide services in accordance with (a) this Agreement, and (b) the investment objectives and investment guidelines set forth in Schedule A hereto (the “Investment Objectives and Guidelines”). The Investment Objectives and Guidelines may be modified from time to time by PRIM, upon at least thirty (30) days’ prior written notice to the Manager. Subject to such policies, the Manager shall use its best efforts to increase the value of the Account by causing the assets in the Account to be invested and reinvested from time to time.
2. The Account. The responsibilities and duties of the Manager are limited to the assets of the account designated by PRIM (the "Account"), which assets will be only a portion of the assets of PRIT. From time to time, PRIM may transfer other assets of PRIT to the Account or withdraw any assets from the Account upon written notice to the Manager. Nothing in this Agreement will constitute a commitment by PRIM to maintain any minimum amount of assets in the Account. The Manager also shall furnish to PRIM necessary assistance in the preparation of all reports relating to the Account now or hereafter required by applicable law.
3. Investment Objectives and Guidelines. The Manager will have full responsibility to invest and reinvest the Account, principally in marketable small cap domestic equity securities in accordance with the Investment Objectives and Guidelines, and in compliance with the Operating Trust of PRIM and all applicable laws and regulations.
4. Discretionary Authority. The Manager shall have only those powers set forth in the Operating Trust of the Pension Reserves Investment Management Board, as amended, which powers are explicitly granted to the Manager by PRIM in this Agreement and, with respect to the assets of the Account, all powers which are not so granted shall be exercised only by PRIM. Pursuant to Section 9.2(h) of the Operating Trust, PRIM authorizes the Manager to invest the Account in accordance with the Investment Objectives and Investment Guidelines set forth in Schedule A. PRIM reserves the right to control and invest all cash balances that may exist in the Account, and the Custodian (as defined in Section 6) will inform PRIM as to the need for or availability of cash as a result of securities transactions. In carrying out its responsibilities as investment manager, and subject to this Section 4, and the Investment Objectives and Guidelines, the Manager will have full and complete discretion to direct and manage the investment and reinvestment of assets in the Account with full and exclusive power and authority (a) to buy, sell, exchange, convert and otherwise trade in any securities as the Manager may select and (b) to establish and maintain and deal through accounts with one or more securities brokerage firms as the Manager may select. In making all such selections, the Manager will, bearing in mind the best interests of the Account, use its best efforts to obtain for the Account the most favorable net price and execution available. PRIM reserves the right to specify that any part of the securities transactions for the Account be directed by the Manager to securities brokerage firms that meet requirements or participate in programs or initiatives specified by PRIM. Consistent with Massachusetts General Laws, Chapter 32, Section 23, subdivision (2A)(h), in selecting brokerage firms, the Manager will use its best efforts to benefit and expand the economic climate of the Commonwealth of Massachusetts, including by utilizing brokerage firms within the Commonwealth, so long as this is consistent with its duties and obligations hereunder.
5. Confidentiality. The Manager will maintain in strictest confidence the investment advice and information it furnishes to or receives from PRIM or the Custodian (as defined in Section 6) in connection with this Agreement; provided, however, that the Manager will be permitted to disclose or communicate to a proper party any information received from PRIM or the Custodian or developed by the Manager under the terms of this Agreement, if such disclosure or communication is necessary to carry out the purposes of this Agreement or is required by law. Before such disclosure or communication, the Manager, unless prohibited by law, will notify PRIM of the information to be disclosed or communicated and the party to whom that information will be disclosed or communicated. The terms of this paragraph shall not be interpreted so as to prevent the Manager from providing investment advice to other clients who share comparable investment objectives with PRIM, or to prohibit the Manager from utilizing the Manager’s investment experience or performance with respect to the Account on an undisclosed basis for use in composite performance presentations. The Manager hereby approves of periodic reports by PRIM and its staff of the Manager’s investment program and investment results hereunder, recognizing that such reports may be public records available to the media and the public.
6. Custody of Account Assets. PRIM has entered into an Agreement with Boston Safe Deposit and Trust Company to act as custodian for all assets of PRIT being managed by investment managers, including without limitation any cash which may be in the Account from time to time, and no assets of the Account may be delivered or paid to the Manager. The entity serving as such custodian from time to time is herein referred to as the “Custodian”. The Manager will furnish to the Custodian, with a copy to PRIM, a list of the Manager’s personnel who are authorized to give instructions to the Custodian with respect to the Account, and will forthwith upon any change in such personnel furnish an amended list to the Custodian, with a copy to PRIM. The Custodian will maintain separate records for the Account, and the Manager agrees to furnish to the Custodian all information reasonably necessary to maintain such records. The Manager shall have no responsibility or liability with respect to the acts, omissions or other conduct of the Custodian. PRIM reserves the right to change the Custodian upon thirty (30) days’ notice to the Manager.
7. Statement of Account; Valuation; Reports. The Manager shall keep full and complete records of all transactions with respect to the Account and will, at the end of each month during the term of this Agreement, render a statement thereof to PRIM together with a portfolio analysis of the Account and performance comparisons related thereto, and a listing of applicable transaction costs including brokers used and commissions paid, if any, to brokers and the average cents per unit for trades. The Manager shall also furnish to PRIM such additional reports with respect to the Account as PRIM shall reasonably request from time to time, including the information set forth in Schedule C hereto (“Investment Manager Compliance” reports). On a monthly basis, no later than the seventh business day, the Manager shall also deliver to the Custodian a report of all transactions in the Account during the prior month and a listing of each investment in the portfolio and its net asset value at the end of said month. The Manager shall also from time to time, but no less than semi-annually, attend meetings (which, in PRIM’s sole discretion, may be by telephone conference) with PRIM to discuss the Account and the investment outlook.
PRIM shall cause the Custodian to provide the Manager with an appraisal of the assets in the Account as of the last business or trading day of each month, together with a transaction statement for the month listing all transactions occurring during the month as well as opening and closing cash balances. This statement will be rendered on a trade date basis and include any accrued income calculations. The Manager shall be responsible for reconciliation of the Account with the Custodian on a monthly basis, and shall promptly notify PRIM of all unresolved material differences.
The Manager shall promptly notify PRIM in writing (1) of any change in the Manager’s representations in this Agreement during the term of this Agreement; (2) of any change in the senior management and key investment professionals, or material changes in ownership of the Manager’s organization; (3) of any change in the senior portfolio management team of the Account; (4) of any change in approach to the management of the Account; (5) of any other material change in the Manager’s business activities or circumstances, including changes affecting the Manager’s equity capital; (6) of any action taken by the Manager that is contrary to or inconsistent with this Agreement, including the Investment Objectives and Investment Guidelines set forth in Schedule A; and (7) of the commencement by any governmental regulatory or law enforcement agency of any investigation, examination or other proceeding directly involving the Manager, its owners, or employees, except such investigations, examinations or other proceedings as are routinely conducted in the ordinary course of the Manager’s business.
8. Fees and Expenses. The Manager will be entitled to receive from PRIM as complete compensation for services rendered hereunder the fees set forth in Schedule B hereto. The Fee Schedule may be modified by mutual agreement of the parties in writing. Such fees will be paid by PRIM at the times and in the manner specified in the Fee Schedule, and will be pro-rated from the Effective Date. The Manager will not be paid or reimbursed for any expenses except to the extent permitted by PRIM in writing. In the event that the Manager currently or at any time during the continuation of this Agreement performs similar services for other clients with a similar dollar level of assets at a lower or more favorable fee schedule, the Manager will promptly notify PRIM of such arrangement.
9. Services Not Exclusive. The services of the Manager and its personnel to be provided under this Agreement are not exclusive, and the Manager may provide services to others and engage in other activities, but the Manager will allocate such personnel and devote such efforts as are necessary for it to carry out its duties under this Agreement. The Manager may give advice and take action in the performance of its duties with respect to any of its clients which may differ from the advice given, or the timing or nature of action taken, with respect to the Account, so long as the Manager adheres to a policy of allocating investment opportunities to the Account over a period of time on a fair and equitable basis relative to other clients. Nothing in this Agreement shall impose upon the Manager any obligation to purchase or sell for the Account any security or other property which the Manager purchases or sells for its own account or the account of any other client if, in the opinion of the Manager, such transaction or investment appears unsuitable, impracticable or undesirable for the Account.
10. Procedures. All transactions will be consummated by payment to, or delivery by, PRIM, or such other party as PRIM shall have designated in writing as the Custodian. Instructions of the Manager to PRIM and/or the Custodian will be made in writing (or by such electronic means as the Manager and PRIM and/or the Custodian may establish and maintain from time to time). The Manager will instruct all brokers or dealers executing orders on behalf of the Account to forward to PRIM and/or the Custodian copies of all brokerage confirmations promptly after execution of transactions. The Manager shall have full and complete discretion to establish accounts with one or more securities brokers as the Manager may select. The Manager shall not be responsible for any acts or omissions by any such broker or brokers, or third parties. The Manager is hereby authorized to combine orders on behalf of the Account with orders on behalf of other clients of the Manager. As set forth in Section 4, the Manager will use its best efforts to obtain the most favorable net price and execution available on securities traded for the Account.
11. Persons Authorized to Act for the Manager. The Manager will from time to time certify to PRIM the name of the person or persons authorized to act on its behalf and will give PRIM a specimen of his or their signatures. Any person so certified will be an authorized representative of the Manager for purposes of this Agreement and his authority to act on behalf of the Manager will continue until notice to the contrary is given by the Manager and received by PRIM.
12. Persons Authorized to Act for PRIM. PRIM may from time to time designate any person or persons to act on its behalf in giving instructions, directions, notices or other communications to the Manager and will certify the name of such person or persons to the Manager and give the Manager a specimen of his or their signatures. The authority of any such person to act on behalf of PRIM will continue until notice to the contrary is given by PRIM and received by the Manager. All oral instructions shall be promptly confirmed in writing.
13. Proxies. PRIM will vote all proxies for securities held in the Account. The Manager shall, in conjunction with PRIM and the Custodian, develop procedures to facilitate the timely exercise by PRIM of these rights.
14. Representations by the Manager. The Manager represents and warrants that it is registered and in good standing as an investment adviser pursuant to the Investment Advisers Act of 1940, as amended, and that it has completed, obtained or performed all other registrations, filings, approvals, authorizations, consents or examinations required by any government or governmental authority for the performance of the acts contemplated by this Agreement. The Manager will deliver documentation of such compliance annually or as PRIM may reasonably request. PRIM acknowledges receipt of Parts I and II of the Manager’s Form ADV, and the Manager's Disclosure Statement, as required by Rule 204-3 under the Investment Advisers Act of 1940, not less than 48 hours prior to the date of execution of this Agreement.
15. Termination. This Agreement may be terminated at any time by PRIM upon written notice to the Manager of such termination, and by the Manager upon thirty days’ written notice to PRIM, effective as of the date set forth in such notice. Any termination of this Agreement shall be without payment of any penalty by PRIM.
A pro rata determination of fees, if appropriate, will be made for any quarter in which this Agreement has been terminated. Any performance fee owed but still due at time of termination will be paid over the remaining time and in accordance with the established payout schedule as provided for in Schedule B.
PRIM may also at any time without prior notice direct the Manager to cease activity with respect to the Account, provided, however, that all trades executed but not settled prior to such direction shall be settled. Upon termination the Manager shall cooperate with PRIM to transfer the securities and other assets in the Account and on the effective date of the termination of this Agreement or as close to such date as is reasonably possible, the Manager shall provide PRIM with a final report containing the same information as provided in the monthly reports provided pursuant to Section 7.
16. Fiduciary Status of The Manager; Chapter 268A. With respect to the performance of its duties and responsibilities hereunder for the Account, the Manager acknowledges that it is a "fiduciary" within the meaning of Chapter 32 of the Massachusetts General Laws. The Manager will discharge its duties and responsibilities under this Agreement in accordance with the fiduciary standards of conduct and other requirements as they apply to the Manager. The Manager is advised of the existence of Massachusetts General Laws, Chapter 268A (the Massachusetts "Conflict of Interest" statute), and is expected to act and perform its duties in accordance with such provisions. The Manager acknowledges that PRIM has delivered a copy of Chapters 32 and 268A of the Massachusetts General Laws as currently in effect to the Manager.
17. Liability. The Manager shall not be liable for the selection of the Investment Objectives and Guidelines but shall be responsible for the management of the Account in accordance therewith and with such other instructions as PRIM may provide from time to time. In addition to those requirements set forth in Section 16, at all times the Manager shall exercise the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent expert acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims. The Manager shall have no responsibility whatsoever for the management of any other assets of PRIT and the Manager shall have no duty, responsibility, or liability in connection with the operation or the administration of PRIT. The Manager shall not be subject to liability for any act, omission or mistake of judgment in the course of, or connected with, the performance of its responsibilities hereunder, except for its own negligence, willful misconduct or lack of good faith. Nothing herein shall be construed to waive any liability that the Manager has under applicable federal or state securities laws, or ERISA. No obligation of the Manager, under this Agreement or otherwise, shall be binding personally upon any of the shareholders, officers, agents, employees or trustees of any trust which the Manager may have established.
18. Authority. Each of the parties to this Agreement represents that it is duly authorized and empowered to execute, deliver and perform this Agreement, that such action does not materially conflict with or violate any provision of law, rule or regulation, contract, deed of trust, or other instrument to which it is a party or to which any of its property is subject, and that this Agreement is a valid and binding obligation, enforceable against such party in accordance with its terms.
19. Bonding. The Manager agrees to maintain during the term of this Agreement any fidelity bond with respect to the assets of the Account which it would have to maintain to satisfy Section 412 of ERISA and the regulations thereunder if PRIM or PRIT were subject to the terms of ERISA.
20. “Soft Dollar” and Other Arrangements. On an ongoing basis not less than annually, the Manager will identify and provide a written description to PRIM of all “soft dollar” arrangements that it maintains with respect to the Account or with brokers or dealers which execute transactions for the Account. Prior to the commencement of the active management of the Account, and periodically thereafter, but no less often than annually, the Manager shall provide PRIM with a written description of all arrangements with third parties and other individuals, entities, brokers or money management firms who have or may receive or share in the payment of fees for services in connection with securing or continuing this Agreement.
21. Confirmations. The Manager will arrange to have brokers who effect transactions for the Account send to the Custodian confirmations of purchases and sales. Upon written request of PRIM, the Manager will arrange to have copies of any of the foregoing sent to any other persons designated by PRIM.
22. Communication. Any approvals, instructions, directions, notices or other communications (other than oral instructions described in Section 12) pursuant to this Agreement will be mailed or delivered:
a) to PRIM at:
Pension Reserves Investment Management Board
84 State Street, Suite 250
Boston, Massachusetts 02110
Attention: Michael G. Trotsky, CFA, Executive Director
b) to the Manager at:
[manager]
c) to the Custodian at:
BNY Mellon
135 Santilli Highway
AIM 026-0313
Everett, MA 02149
Either party may change the address for notices or other communications to it by written notice to the other stating the new address. PRIM may change the name and address for notices or other communications to the Custodian by written notice to the Manager. Notices from either party to the other will be effective when received by the addressee.
23. Assignment, etc. The Manager will not assign this Agreement without the prior written consent of PRIM. This Agreement constitutes the entire Agreement of the parties with respect to its subject matter and may only be amended by a written amendment signed by both parties.
24. Headings; Attachments. Headings are for convenience only, and the text of this Agreement will govern the rights and obligations of the parties. Each of the Attachments hereto is incorporated herein by reference. Capitalized items used herein have the same meanings as in this Agreement.
25. Disputed Matters. With respect to any controversy or dispute arising out of this Agreement, interpretation of any of the provisions hereof, or the actions of the Manager or PRIM hereunder, each of the parties consents to the non-exclusive jurisdiction of all of the federal and state courts in the Commonwealth of Massachusetts, agrees that venue with respect to any action in such Commonwealth shall lie exclusively in Suffolk County, Massachusetts, and waives any defense of forum non conveniens; provided, however, that at the sole election of PRIM, any such controversy or dispute shall be submitted to arbitration before the American Arbitration Association under the Commercial Arbitration Rules then obtaining of said Association, such arbitration to be held in Boston, Massachusetts, and judgment upon any award thus obtained may be entered in any court having jurisdiction thereof. In any such arbitration each party to the arbitration shall bear its own expenses, including expenses of attorneys, financial experts and other witnesses; any arbitration fees and expenses of the arbitrators shall be divided equally between the disputing parties. Service of process on either party shall be deemed effective if made in the manner prescribed for the giving of notice in Section 22.
26. Massachusetts Law. This Agreement will be considered to be an instrument made under seal in the Commonwealth of Massachusetts and it will be construed and the rights and obligations of the parties determined in accordance with the laws of said Commonwealth, without giving effect to conflicts of laws principles.
IN WITNESS WHEREOF, the Manager and PRIM have executed this Agreement as of the date first above written.
PENSION RESERVES INVESTMENT
MANAGEMENT BOARD
BY: _____________________________
Michael G. Trotsky, CFA, Executive Director
[manager]
BY: ______________________________
NAME: ___________________________
TITLE: ___________________________
[Manager]
Schedule A: Proposed Investment Objectives and Guidelines
(Specific guidelines will be customized with managers)
I. Investment Objectives
The Manager’s performance benchmark is the [to be customized].
Annualized performance, net of fees, should exceed benchmark performance by at least [to be customized] basis points over a three- to five-year period, and should rank in the top half of managers with similar objectives.
II. Investment Guidelines
To be customized by strategy (sample follows)
A. Authorized Investments
1. The Manager shall invest principally in stocks traded on non-U.S. equity markets. Rights, warrants and convertible securities, if issued by companies whose common stocks would be properly held in the portfolio, are also permitted investments whether or not the common stock is actually held in the portfolio. ADR’s and GDR’s are permitted investments.
2. Forward foreign currency exchange contracts, exchange traded futures, and exchange traded currency options are permitted for defensive currency hedging.
3. The Manager may not:
• purchase Emerging Markets securities. Emerging Markets are
defined as countries not included in the MSCI EAFE Index;
• purchase securities on margin;
• use swaps on indices or securities;
• sell securities short;
• use derivatives other than those specified under authorized investments;
• leverage the portfolio.
B. Specific Investment Guidelines
To be customized to strategy
C. Portfolio Characteristics
To be customized to strategy
[Manager]
Schedule B: Fee Schedule
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[Manager]
Schedule C: Manager Compliance Report
Compliance Certification
In addition to the requirements of Paragraph 7 of the Investment Management Agreement, as soon as practicable at the close of each calendar quarter, the Manager shall certify to PRIM that:
1. the Manager has not deviated from the Investment Guidelines set forth in the Investment Objectives and Guidelines (Schedule A to the Investment Management Agreement);
2. the Manager has not deviated from the requirements of Massachusetts General Laws, chapter 32, section 23, concerning certain investments relating to South Africa and Northern Ireland, Sudan and tobacco.
If the Manager is unable to provide either of the certifications outlined above, the Manager shall provide PRIM with a detailed written explanation.
[Manager]
Schedule D: Monthly Reconciliation Procedure
The Manager shall strike a monthly reconciliation with PRIM’s Custodian. This Schedule describes the reconciliation procedure that Manager will follow with respect to PRIM’s Account.
The attachments are as follows:
A. Monthly Reconciliation Schedule. This schedule (Attachment 1) details the timetable that must be followed each month.
B. Reconciliation Form. This is the form (Attachment 2) for reconciling with Custodian. The form must be filled out completely, with supporting data as necessary. The form comprises a number of reconciliation “elements” (shares, CUSIP number, income, etc.).
Reconciliations are completed when the Manager has accomplished the following steps:
1. reconciled both the CUSIP and share number for each security position with those shown on the Custodian’s records;
2. compared Custodian’s prices on each security to Manager’s prices and challenged Custodian’s prices on securities (if any) that exceed the Manager’s internal pricing tolerances;
3. reconciled portfolio income for the period with that shown on Custodian’s records;
4. noted methodology differences on the reconciliation form;
5. resolved all differences with Custodian within a tolerance of less than or equal to twenty five basis points (0.25%); and
6. updated the Manager’s records to reflect all corrections necessary.
C. Methodology Schedule. This lists various methods by which Custodian arrives at the final net asset value of a portfolio. If methodology differences consistently result in portfolio market values outside the monthly ten basis point tolerance, it may be necessary to refer to this schedule to determine the source of the problem. In all cases of conflicting methodologies, Custodian’s methodology will govern.
C. Monthly Performance Report. Once the accounting reconciliation has been completed, Attachment 4, the format for a performance comparison, must be completed and faxed to the Custodian contact shown on this Attachment. Custodian Analytics will compare the Manager’s return to their returns and, in the event the difference between the Manager’s return and the Custodian return is excessive, Custodian will contact the Manager to resolve such discrepancies.
In order to adhere to the timetable set forth in Attachment 1, the Manager will need to have the Custodian’s online system installed in the Manager’s operations area so that reconciliation can be performed electronically. If the Manager does not already have the Custodian’s online system in its operations group, the Manager should contact the Custodian’s investment manager services area.
In addition to the Manager’s contacts at the Investment Manager Services area of Custodian, all the Manager’s operations personnel involved with the reconciliation process should be given the name of PRIM’s client service officer at Custodian (PRIM will supply the name, telephone number and email address of this individual to the Manager). The supervisor of the Manager’s operations area should call or email this individual immediately with the names of the Manager’s operations personnel who work on the PRIM reconciliation, a description of their roles, and their telephone numbers.
Payment of the Manager’s fee is shall be contingent upon the Manager reconciling with the Custodian as provided above.
ATTACHMENT 1
PRIM
PUBLIC MARKETS INVESTMENT MANAGER
MONTHLY RECONCILIATION SCHEDULE
First business day: PRIM sends expense accrual information to Custodian for input.
Second business day: Custodian sends preliminary net asset value data to public
markets managers via online system or other electronic means (Available the morning of third business day).
Third business day: Public markets managers perform preliminary reconciliation of net asset value using summary data on online system.
Fifth Business day: Public markets managers complete and return to Custodian preliminary reconciliations of net asset value as per Attachment 2.
Seventh business day: Public markets managers and Custodian resolve any discrepancies, as per Attachment 2. Public markets managers complete and return to Custodian Attachment 5, Monthly Performance Report.
Eighth business day: Custodian mails final reports to Investment Managers Custodian Accounting delivers final reports to Custodian Performance and Analytics.
Eleventh business day: Public markets managers and Custodian complete final performance reconciliation. Public markets managers advise PRIM by fax that both the final account reconciliation and the performance report are complete.
Twelfth business day: Custodian Analytics issues final performance reports.
ATTACHMENT 3
METHODOLOGY DIFFERENCES
I. Pricing
The Manager should address questions regarding pricing challenges to PRIM’s Client Service Officer at the Custodian.
II. Amortization.
Custodian uses straight-line amortization on all zero coupon bonds.
III. Trade date vs. settlement date accounting.
Custodian reflects all holdings as of trade date.
IV. Exchange rates.
Custodian uses RT12 (Reuters 12 Noon London time, last trading day of the month) exchange rates to establish the dollar price of non-dollar securities.
V. Posting of dividends and interest.
Custodian reflects dividend and interest income as of ex-date.
Custodian accrues interest income daily based on the parameters of the fixed income instrument.
VI. Computation of realized gain and loss.
Custodian calculates the average cost of each security in the portfolio and uses this as a basis from which to compute the realized gain or loss on the position.
ATTACHMENT 4
PENSION RESERVES INVESTMENT MANAGEMENT
Monthly Performance Information
TO: [Custodian] PHONE#:
FAX#:
FROM: Phone#:
COMPANY: Fax#:
SSB FUND:
MONTH:
Prior Current
Month Month
|Month End Market Value: | | | | |
|Net Cash Flow (Contributions/Withdrawals) | | | | |
|Portfolio Management Fee | | | | |
| | | | | |
| | |Rate of Return | |Rate of Return |
| | |Gross of Fees | |Net of |
| | | | |Fees |
|Investment Results: | | | | |
|Current Month | | | | |
|Year to Date | | | | |
| | | | | |
Comments (Major Flows, Corrections to prior month values or returns):
THIS COMPLETED DOCUMENT MUST BE RECEIVED BY CUSTODIAN NO LATER THAN THE END OF THE SEVENTH BUSINESS DAY AFTER MONTH END, IN ORDER FOR RECONCILIATION TO BE COMPLETE.
PRIM
INVESTMENT MANAGER
MONTHLY RECONCILIATION SCHEDULE
First business day: PRIM sends expense accrual information to Custodian for input.
Second business day: Custodian sends preliminary net asset value data to managers via online system or other electronic means (Available the morning of third business day).
Third business day: Managers perform preliminary reconciliation of net asset value using summary data on online system.
Fifth Business day: Managers complete and return to Custodian preliminary reconciliations of net asset value as per Attachment 2.
Seventh business day: Managers and Custodian resolve any discrepancies, as per Attachment 2. Managers complete and return to Custodian Attachment 5, Monthly Performance Report.
Eighth business day: Custodian mails final reports to Investment Managers Custodian Accounting delivers final reports to Custodian Performance and Analytics.
Eleventh business day: Managers and Custodian complete final performance reconciliation. Public markets managers advise PRIM by fax that both the final account reconciliation and the performance report are complete.
Twelfth business day: Custodian Analytics issues final performance reports.
EXHIBIT C
Disclosure Forms
PRIM Disclosure Form
PERAC Disclosure Form
PRIM Board Disclosure Statement
COMMONWEALTH OF MASSACHUSETTS
PENSION RESERVES INVESTMENT MANAGEMENT BOARD
THIRD PARTY DISCLOSURE STATEMENT
FIRM: _________________________
ADDRESS: _________________________
_________________________
_________________________
Third parties seeking to provide investment management, consulting, custody and recordkeeping, auditing and other professional services, related to the management of the Commonwealth of Massachusetts Pension Reserves Investment Management Board (“PRIM”) and the Pension Reserves Investment Trust Fund (PRIT) must complete a disclosure statement providing complete and accurate responses to the questions below. Firms selected to provide such services to PRIM have a continuing obligation to update responses to these questions, in writing, immediately upon any change to such responses. The questions in this Disclosure Statement should be read broad, and any perceived ambiguity should be resolved in favor of disclosure. Any questions concerning the disclosures required should be directed to the PRIM Board’s Executive Director.
1. Identify any relationship of the firm, its joint ventures, consultants, lobbyists, subcontractors, agents, or placement agents that relate in any way to the engagement.
2. Aside from the engagement, describe any services provided by the firm to PRIM or PRIT.
3. Aside from the services described in response to question no. 2, above, describe any services provided by the firm to the Office of the Treasurer or any trust, board, commission or authority of which the Treasurer is a member or trustee. (A list of such entities is attached.)
4. Provide the following information. Complete and thorough answers to each section (a-e) are required.
a. A statement whether the firm or any of its principals, employees, agents or affiliates has compensated or agreed to compensate, directly or indirectly, any person or entity to act as a Placement Agent in connection with the investment. If a Placement Agent or Agent of any kind was utilized in connection with this engagement, please list the name, address and principal agents of the firm.
b. A description of any and all compensation of any kind provided or agreed to be provided to a Placement Agent, including the nature, timing and value thereof. Compensation to Placement Agents shall include compensation to third parties as well as employees of the firm who are retained in order to solicit, or who are paid based in whole or in part upon, an investment.
c. A description of the services performed by the Placement Agent and a statement as to whether the Placement Agent is utilized by the firm with all prospective clients or only with a subset of the firm’s prospective clients.
d. A statement that the Placement Agent (or any of its affiliates, as applicable) is registered with the Securities and Exchange Commission or the Financial Industry Regulatory Association and the details if such registration.
e. A statement whether the Placement Agent, or any of its affiliates, is registered as a lobbyist with any state or national government.
*A Placement Agent is Any person or entity hired, engaged or retained by or acting on behalf of the firm or on behalf of another Placement Agent as a finder, solicitor, marketer, consultant, broker or other intermediary to raise money or investment from or to obtain access to Board, directly or indirectly.
Signed under the pains and penalties of this ____ day of _________, 200_.
Name:
Title:
Treasurer’s Principal Boards, Commissions and Authorities
1) Finance Advisory Board – M.G.L. c.6, s97-8
2) State Comptroller’s Advisory Board – M.G.L. c.5A, s2
3) Investment Advisory Council – M.G.L. c.10, s5B
4) State Retirement Board – M.G.L. c.10, s18
5) Teacher’s Retirement Board M.G.L c.15, s16
6) State Lottery Commission – M.G.L. c.10, s23
7) Alcoholic Beverages Control Commission – M.G.L. c.10, s70
8) School Building Authority – M.G.L. c70B, s3A
9) Commonwealth Covenant Fund – M.G.L. c10, s35EE
10) Health Care Security Trust – M.G.L c29D, s6D
11) Commissioners on Firemen’s Relief – M.G.L c10, s21
12) Retirement Law Commission – M.G.L. c10, s35I
13) Board of Bank Incorporation – M.G.L. c.26, s5
14) Water Pollution Abatement Trust – M.G.L. c.29, s2
15) Pension Reserves Investment Management – M.G.L. c.32, s23(2A)
16) Massachusetts Convention Center Authority – Chapter 190 of the Acts of 1982 ss31- 48
PERAC Disclosure
Please obtain the PERAC disclosure form at the following website, fill it out, and submit together with the COMMONWEALTH OF MASSACHUSETTS PENSION RESERVES INVESTMENT MANAGEMENT BOARD disclosure form:
EXHIBIT D
Please refer to Chapter 32 of the Massachusetts General Laws and
Chapter 268A Massachusetts Conflict of Interest Law at
EXHIBIT E
PRIM Investment Policy
Please go to the link below to see the Investment Policy:
EXHIBIT F
PRIM ETI Policy
Adopted 8/14/03
A. PRIM recognizes its obligations under Massachusetts law include a responsibility to seek out investment opportunities that will benefit the economic climate of the Commonwealth as a whole, provided that such investments are consistent with the Board’s obligations to the members and beneficiaries of its participating retirement systems. (See M.G.L. ch. 32, sec. 23(2A)(h)) Accordingly, in cases where investment characteristics, including returns, risk, liquidity, compliance with allocation policy, and others, are equal, PRIM will favor those investments that have a substantial, direct and measurable benefit to the economy of the Commonwealth.
B. Such Economically Targeted Investments (“ETI’s”) must meet the following criteria:
1. Investments must target risk-adjusted, market-rate returns and provide net returns equivalent to or higher than other available investments, at commensurate levels of risk. Economic or social benefits will not justify a lower return on any PRIM investment. When evaluating ETI opportunities, PRIM will discount projected returns for any subsidies, deferral of income, higher risk levels, and other concessions to reach a real rate of return for comparison with other ETI and non-ETI investment alternatives. Similarly, ETI benefits will not justify higher investment risk. However, where appropriate, the PRIM staff, its managers, and its consultants will actively seek out and develop guarantees, third party recourse, hedging, and other acceptable and customary risk management vehicles to reduce or eliminate risk in ETI investments.
2. Investments must not exceed a reasonable weighting in the portfolio, including tracking the degree of exposure to the Massachusetts economy and ensuring appropriate geographic diversification. Investments should maintain the overall portfolio’s compliance with its asset allocation strategy. ETI benefits will not justify deviation from the Asset Allocation Plan adopted by the PRIM Board.
3. Investments should be placed with an experienced and capable manager through an objective and transparent process. Investments should be managed by qualified discretionary investment managers. PRIM will not make any direct investments.
4. Investments should target a “capital gap” where there are likely to be underserved markets.
5. Investments must be tracked (both investment performance and collateral benefits) and managed with the same rigor and discipline imposed on other investments. Investments should be reviewed and monitored by PRIM staff and consultants without disproportionate expenditure of time and resources.
EXHIBIT G
Chapter 240 of the Acts of 2010
(Economic Development Reorganization Act)
Full text at
EXHIBIT H
EQUITY AND FIXED INCOME MANAGER PERFORMANCE
Please refer to Excel performance spreadsheet attached as Exhibit H.
EXHIBIT I
REAL ESTATE MANAGER PERFORMANCE
Please fill out the Excel performance spreadsheet attached as
Exhibit I for every fund your firm has sponsored.
EXHIBIT J
ALTERNATIVE INVESTMENTS MANAGER PERFORMANCE
Please refer to Excel performance spreadsheet attached as Exhibit J.
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