Sr - Banco Central Do Brasil



Banco Central do Brasil

External Asset Management Program

Selection Process 2003

Banco Central do Brasil runs an External Asset Management Program that hires a number of international institutions to manage a minor part of its international reserves. The main objective of Banco Central do Brasil in running this program is to acquire advanced know-how in fixed income markets and related matters.

As the end of the Program’s second performance cycle approaches, and in accordance to the provisions regulating the issue, Banco Central do Brasil will be replacing at least two of the existing portfolio managers.

The responsibility involves managing U$ 250 million equivalent sovereign debt portfolio for a period of 2 years that can be renewed depending on manager’s performance amongst other things. External asset managers invest the portfolio against a benchmark and under a set of guidelines whose summary follows attached to the Qualification Questionnaire. By the end of a performance cycle – 2 years from the start of the contract – asset managers will be assessed according to a set of parameters to be further disclosed.

Pre-Qualification

The pre-qualification process will be performed as follows:

a) asset managers must present a minimum credit rating (long-term) of A3 according to Moody’s or equivalent according to Standard & Poor’s or Fitch Ratings, attributed to their parent company. Asset managers that present a credit rating as specified must also have had under management, as of December 31, 2002, fixed income portfolios equivalent to a minimum of US$ 20 billion;

b) asset managers for which a credit rating is not provided by any of the above rating agencies can apply but they will pre-qualify only if their fixed income portfolio, as of December 31 2002, is at least equal to the average portfolio of the candidates pre-qualified with rating.

Answers will only be accepted if sent via courier. Answers received via any other means of communications (e.g., fax, e-mail) will be totally disregarded. Banco Central do Brasil would also appreciate if candidates organised their answers to match the section letters and question numbers and made the appropriate references.

Institutions willing to undertake these responsibilities and that present the pre-qualifying requisites must present answers to the Qualification Questionnaire no later than September 26th 2003 to the following address:

Banco Central do Brasil

DEPIN – Departamento de Operações das Reservas Internacionais

Att: Moacyr de Aquino

Re: External Asset Management Program

SBS – Quadra 3 – Bloco B – Ed. Sede - 5˚ andar

70074-900 Brasília – DF

Brazil

In case of further information needed, candidates should only address questions to eam.depin@.br, the official Banco Central do Brasil’s External Asset Management Program e-mail address, referring as subject EAM Selection Process 2003.

Banco Central do Brasil reserves the right to disclose the name(s) of the selected institution(s).

Daso Maranhão Coimbra

International Reserves Operations Department

Programa de Gerenciamento de Reservas Internacionais

Processo Seletivo 2003

O Banco Central do Brasil opera um Programa de Gerenciamento Externo de parte de suas reservas internacionais. O principal objetivo desse trabalho é o desenvolvimento de uma relação de troca de experiências na área de mercados de renda fixa internacional com o intuito de adquirir conhecimento especializado por servidores do Banco Central do Brasil.

Com a aproximação do final do segundo mandato do programa e, de acordo com as normas pertinentes ao assunto, o Banco Central do Brasil substituirá no mínimo duas instituições financeiras entre os atuais administradores externos.

A responsabilidade envolve a administração de uma porção das reservas internacionais de aproximadamente US$ 250 milhões em títulos soberanos, por um período de 2 anos renováveis dependendo, dentre outras coisas, da performance financeira obtida. Os administradores externos deverão investir o portfolio em relação a um benchmark e sob parâmetros de investimento estabelecidos para o programa, cujo sumário segue anexo ao Qualification Questionnaire. Ao fim de um ciclo de medição de desempenho financeiro – 2 anos do início do contrato – os gerentes serão avaliados de acordo com parâmetros que serão divulgados oportunamente.

Pré-Qualificação

A pré-qualificação das empresas será da seguinte forma:

a) um credit rating (long-term) mínimo, atribuídos a estas ou às respectivas holdings, de A3 de acordo com a classificação da Moody’s ou ou rating equivalente segundo as agências Standard & Poor’s ou Fitch Ratings. Além do credit rating (long-term) mínimo, as empresas devem ter tido sob sua administração, em 31 de dezembro de 2002, uma carteira de renda fixa equivalente ao mínimo de US$ 20 bilhões;

b) as empresas às quais não é concedido credit rating poderão apresentar proposta mas estarão pré-qualificadas caso tiverem tido, também, sob sua administração, em 31 de dezembro de 2002, uma carteira de renda fixa com montante mínimo equivalente à média dos candidatos pré-qualificados segundo o critério anterior.

As respostas apenas serão aceitas se enviadas por correio. Respostas enviadas através de quaisquer outros meios de comunicação (e.g., fax, e-mail) serão totalmente desconsideradas. O Banco Central do Brasil solicita que as respostas estejam organizadas da mesma forma que o questionário, sendo referenciadas às respectivas seções e respeitando sua ordem numérica.

As instituições que pretendam assumir essa responsabilidade e que satisfaçam uma das exigências mencionadas no parágrafo anterior, devem apresentar as respectivas respostas ao Qualification Questionnaire, até 26 de setembro de 2003, enviadas apenas por correio, através de envelope fechado, para o seguinte endereço.

Banco Central do Brasil

DEPIN – Departamento de Operações das Reservas Internacionais

Att: Moacyr de Aquino

Re: External Asset Management Program

SBS – Quadra 3 – Bloco B – Ed. Sede - 5˚ andar

70074-900 Brasília – DF

Brazil

Caso os interessados necessitem de informações adicionais, devem dirigir suas dúvidas e questões exclusivamente ao endereço oficial da Consultoria de Acompanhamento do Gerenciamento Externo das Reservas Internacionais, eam.depin@.br, indicando na linha do assunto do e-mail a referência EAM Selection Process 2003.

O Banco Central do Brasil se reserva o direito de divulgar os nomes das instituições escolhidas.

Daso Maranhão Coimbra

Chefe do Departamento de Operações das Reservas Internacionais

Qualification Questionnaire

When answering the questionnaire, please note that all information must refer only to the asset management company. Information about the holding company and other affiliates must be given only when clearly requested in the questions.

Answers must be sent via courier to:

Banco Central do Brasil

DEPIN/COGER

Att: Moacyr de Aquino

Re: External Asset Management Program

SBS – Quadra 3 – Bloco B – Ed. Sede - 5˚ andar

70074-900 Brasília – DF

Brazil

In case of further information needed, candidates should only address questions to eam.depin@.br, the official e-mail address of Banco Central do Brasil’s External Asset Management Program, referring as subject EAM Selection Process 20031.

Section A: About your Company

1. Please provide a description of your firm including:

a. Brief history;

b. The holding company of your firm;

c. The organisation chart of the entire group;

Please also inform the name, address, fax and telephone numbers and the e-mail of a contact person that will be responsible for this issue on the behalf of your firm.

2. Provide the credit rating (long-term) of your firm, or of the main financial company in the group, according to the following agencies: Moody’s Investors Service, Standard & Poor’s or Fitch Ratings. A document issued by one of the agencies must be included. Please state whether your firm does not bear a credit rating.

3. Inform the location of all your asset management offices. Which office would be responsible for the management of our assets?

4. Is your firm legally subject to any regulatory institution? If so, which one? If not, does your firm adhere to the trading and accounting rules or code of conduct issued by any association? Describe membership or affiliation to any financial market regulation institution (maximum of 10 lines).

Section B: Organization and Staff

5. Provide an organization chart of your firm, and describe the decision process related to the levels of authority on the asset management of institutional investors (maximum of 10 lines).

6. Provide the résumé of the three most important officers who are involved in asset management for your clients, and the officers who would be in charge of our assets, indicating for each:

Name:

Current position:

Description of main functions (maximum of 5 lines):

Professional and educational background (maximum of 5 lines):

Years of experience in asset management:

Years in your company:

Previous company (if applicable):

Section C: Investment Philosophy and Experience

7. Describe your firm’s investment decision process (scenario construction, asset allocation, risk analysis). Are decisions on currency positions taken separately from decisions on interest rate positions or issue selection? Does your firm have the capability of using currency management to enhance returns (currency overlay)? Please detail the method(s) used. Please answer this questions in the scope of our proposed investment guidelines in Appendix 1 (maximum of 20 lines).

Section D: Risk Monitoring and Management

8. Please provide your expectation of excess return, in basis points per year, above the benchmark given (see Appendix 1). Please explain briefly the basis for your estimate. Please provide an objective answer to this question (maximum 5 lines).

9. Describe the relative risk allocation (% of total risk), the relative contribution (% of total returns) and information ratio of each source (or investment sector) in achieving an excess return above a benchmark. (please consider our benchmark, or similar, as reference and use a the table below to display the information).

|Parameter |Relative risk allocation |Contribution to return |Information ratio |

| |(%) |(%) | |

|Duration Interest rate decisions | | | |

|Currency allocation | | | |

|Credit spread | | | |

|Others (please explain) | | | |

10. Please describe your firm's expertise in each of the risk sources allowed in our proposed guidelines on Appendix 1 (maximum of 15 lines).

11. Considering the risk (relative to the benchmark) authorised for this mandate (please refer to Appendix 1):

• Inform whether there is any internal policy that overrides our guidelines thus preventing your managers from using the full risk budget.

• Is there any obstacle for your firm to comply with a guideline imposing a minimum average tracking error for the portfolio?

• Would the situation above apply to any other aspect of our investment guidelines? Please inform any internal restrictions.

Please mind that those are key questions.

12. Please provide a brief description of your tools for risk management (methodology, length and frequency of the data series, whether proprietary or off-the-shelf) (maximum 15 lines)?

13. How is compliance to investment guidelines monitored internally? Is your system able to handle the investment guidelines set forth on Appendix 1? What measures are taken to guarantee that client's guidelines are never violated? Does your system allow managers to check compliance on a pre-trade basis? Is the compliance team independent to investigate cases of violation (maximum 10 lines).

Section E: Assets Under Management

14. Indicate how long has your firm worked in this area and, if possible, your current prominent fixed income clients, naming three of them with a contact person, telephone and fax numbers. Clients such as central banks, other governmental or multilateral organisations will be better considered. This data will be taken into consideration and will be kept under the utmost confidentiality.

15. Please indicate the most important significant (for the purpose of this R.F.P) fixed income funds that you manage for clients (use the chart below). Give preference to mandates that are similar to ours. Please state the date the information refers to. Please attach copies of AIMR compliant reports to back up the data provided.

|# |Type of client |Type of mandate |Benchmark |

| |Total |# of |Total |# of |Total |# of |

| |Volume (*) |portfolios|Volume (*) |portfolios|Volume (*) |portfolios|

|a. Assets invested in fixed income: | | | | | | |

|for other governmental or multilateral organisations | | | | | | |

|for others | | | | | | |

|b. Total of fixed income = a(i)+a(ii)+a(iii) | | | | | | |

|c. Other types of assets | | | | | | |

|Total assets = b+c | | | | | | |

(*) Volumes in US$ million

• The data should refer to the business unit that will be responsible for Banco Central do Brasil mandate. Please provide any information necessary for the best comprehension of the above information, e.g., the specific branch it refers to, any caveats, etc.

• In case any data is published please provide a copy of the proper pages.

Section F: Client Services, Know-how and Technology Transfer

16. Considering that transfer of technology is the main objective of this program, inform the training that your firm is willing to offer to our staff filling out the form below.

PLEASE READ THE INSTRUCTIONS CAREFULLY. YOUR OFFER MUST COMPLY WITH THE FORM BELOW AND WITH THE INSTRUCTIONS PROVIDED. CANDIDATES MUST PROVIDE OBJECTIVE ANSWERS (THUS RULING OUT ANSWERS SUCH AS "TRAINING OFFER MAY BE DISCUSSED SUBSEQUENTLY"

Note that the program should be presented on an annual basis and cover the total duration of the contract. In case your company is selected as our manager it will have to commit to the amount of days of training offered.

Please consider that you must provide at least twice a year portfolio reviews to be held at Banco Central do Brasil. Do not include this information in chart.

Considerations to be taken when offering events outside Brazil:

▪ The events may include internships, seminars, formal training and outsourced training.

▪ Only courses and internships that have tuition, air tickets and lodging sponsored by your firm, for the whole period of training will be accepted. All other types of offer will be disregarded.

▪ Courses at your office must have a minimum duration of one week and a maximum of three weeks.

▪ Whenever possible we prefer to have a minimum of two people attending the same event together.

▪ Each day of training must have, in average, a minimum of 7 (seven) hours of activities.

I. Events at your firm facilities:

| |(2) | | | | |

| |Training subjects |(3) |(4) |(5) |(6) |

|(1) | |Events |Persons from our staff|Number of days |Total |

|Item | |Per year |per event |of the event | |

|1 | | | | | |

|2 | | | | | |

|3 | | | | | |

|...... | | | | | |

| Total ( items 1 + 2 + 3 + 4 + 5 + ......... of column 6 ) | |

1) Ordinal representing the course number.

2) Inform the name of the course/internship according to subjects to be covered (expertise to be acquired by trainees).

3) Inform the number of times that the event will occur per year.

4) Number of people from Banco Central do Brasil to be sponsored for the event.

5) Inform the actual number of days on training, excluding weekends if events are held in more than a week.

6) Inform the number resulting from the multiplication of the values provided in columns 3, 4 and 5, which represents number of training days offered. At any time the training offer may be negotiated to adapt events to changes that best fit either candidate’s or Banco Central do Brasil’s needs as long as the total number of training days is maintained. Candidates will have to commit to that on a yearly basis.

▪ Considering the relevance of visiting portfolio manager's office, the minimum training offer must be of 40 days (as resulted on the bottom line of the table provided above).

Considerations to be taken when offering events at Banco Central do Brasil’s office:

▪ The events may include seminars, formal training and outsourced training.

▪ Events at Banco Central do Brasil’s facilities, courses must have a minimum of two days and a maximum of five days.

▪ The minimum training offer in Brazil must be a total of a week.

▪ Each day of training must have, in average, a minimum of 7 (seven) hours of activities.

II. Events at Banco Central do Brasil’s facilities:

| |(2) | | | |

|(1) |Training subjects |(3) |(4) |(5) |

|Item | |Events |Number of days |Total |

| | |per year |Of the event | |

|1 | | | | |

|2 | | | | |

|3 | | | | |

|....... | | | | |

| Total ( items 1 + 2 + 3 + 4 + 5 + ......... of column 5 ) | |

1) Ordinal representing the course number.

2) Inform the name of the course / internship according to subjects to be covered (expertise to be acquired by trainees).

3) Inform the number of times that the event will occur per year.

4) Inform the actual number of days on training (minimum of two days and a maximum of five days).

5) Inform the number returning from the multiplication of the values provided in columns 3, 4 and 5, which represents number of training days offered. At any time the training offer may be negotiated to adapt events to changes that best fit either candidate’s or Banco Central do Brasil’s needs as long as the total number of training days is maintained. Candidates will have to commit to that on a yearly basis.

Please note that the training offer is a key element in the selection process.

Section G: Fees

17. Inform the single flat-fee, in basis points per year, your firm charges to manage the portfolio described in Appendix 1 (please, do not quote it as a scale).

Also consider that fee payments are calculated and payable every three months from the beginning of the mandate in arrears, in United States dollars, on the basis of the United States dollars equivalent of the average of the total market value of the assets comprising the portfolio on the last day of each month in the relevant three-month period, according to the formulas.

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Where:

Pg represents the gross amount before taxation.

PMV1 represents the market value of the portfolio on the last day of the first month in the three-month period the payment refers to.

PMV2 represents the market value of the portfolio on the last day of the second month in the three-month period the payment refers to.

PMV3 represents the market value of the portfolio on the last day of the third month in the three-month period the payment refers to.

Bpff represents fee expressed in basis point

PMVi is determined as the lowest value between managers and custodian valuations for each month. Banco Central do Central will track the differences so as to guarantee that they are negligible for the purpose of the fee calculation.

The final value to be transferred to manager will be:

Pn = Pg x (1 – Wt)

Where:

Pn represents the three-month period net payment to manager after withholding tax.

Pg represents the gross payable amount before taxation.

Wt represents the percentage of the withholding tax set out by the Brazilian tax authority applicable to payments of the nature, which nowadays is equal to 25%.

APPENDIX 1

Investment Guidelines Summary

This is a summary of the actual investment guidelines and contains the main features that are deemed sufficient for the purposes of this RFP.

▪ The benchmark is composed of approximately 65% of the 1-3 years sector of JP Morgan Government Bond Index of United States, and approximately 35% of the 1-3 years sector of JP Morgan EMU Bond Index (measured in USD). At any time during the program, the return of the portfolio will be expressed in US dollars terms.

▪ Market Risk includes exchange rate risk, interest rate risk (bond market, duration and yield curve risks) and credit spread risk.

▪ Market risk will be measured exclusively in VaR terms. At any time the VaR of the portfolio relative to the benchmark will have to be less than 3.5% a year, measured daily with 95% of confidence. There are no other limits for market risk.

▪ Managers are only allowed to have open exposure, relative to the benchmark, on the following currencies: USD, EUR, JPY, GBP, DKK, NOK, SEK, AUD, CAD, NZD and CHF.

▪ Our Guidelines allow managers to purchase bonds issued by the central governments of the "A" countries, according to Moody's long term credit quality classification.

▪ Authorisation is given to invest up to 25% of the portfolio in USD or EUR denominated Aaa-rated issues of some government-sponsored agencies. Banco Central do Brasil will provide a list of the eligible issuers.

▪ Authorisation is given to invest up to 25% of the portfolio in USD or EUR denominated Aaa-rated issues of supranational organisations.

▪ Minimum allocation in central government: at least 65% of the portfolio denominated in USD must be allocated in bonds issued by the central government of the USA. At least 65% of the portfolio denominated in EUR must be allocated in bonds issued by the central government of the EMU.

▪ Our guidelines also authorises the following instruments:

- Currency forwards

- Interest rate, currency and bond futures

- Repurchase agreements (Banco Central do Brasil will not allow managers to leverage the portfolio through repo transactions)

- Interest rate swaps

Estimated value of portfolio at inception: US$ 250-million.

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