State Universities Retirement System of
Illinois (SURS)
Request for Proposal
Private Equity Fund-of-Funds Services
2016
Table of Contents
I. Request For Proposal Summary Statement 3
II. Background Information 3
III. Specific Services Requested from the Investment Manager 5
IV. Diversity Goals 6
V. Minimum Qualifications 6
VI. RFP Specifications 7
VII. Projected Schedule of Events 10
Appendix A – Minimum Qualifications Certification 11
Appendix B – Disclosures per Illinois Pension Code Section 1-113.21 13
Associated Documents (Attachments)
Appendix C – SURS Questionnaire and Price Sheet (Word document)
Appendix D – NEPC Questionnaire (Word document)
Appendix E – NEPC Questionnaire –Closed End Fund Level Performance (Excel document)
Appendix F – NEPC Questionnaire – Closed End PE Fund Cash Flows (Excel document)
Appendix G– NEPC Questionnaire– Multi-Manager Deal-by-Deal Track Record (Excel document)
Appendix H – Employee Diversity Chart
State Universities Retirement System (SURS)
Request for Proposal (RFP)
May 2016
Private Equity Fund-of-Funds Provider Search
I. RFP Summary Statement
The State Universities Retirement System of Illinois (“SURS” or “System”) is requesting proposals from qualified firms interested in providing Private Equity Fund of Funds Advisory Services (“Proposers”). One or more firms will be considered to manage commitments of up to $300 million per year based on the current private equity pacing model. At the June 2014 Investment Committee meeting, the Board approved the adoption of a three-year private equity funding plan. The funding plan included annual allocations of:
Calendar Year / Commitment Amount2015 / $250 million
2016 / $300 million
2017 / $300 million
Total / $850 million
All forms/required documents needed for submitting a Request for Proposal (“RFP”) are available on the IL SURS website at www.surs.org.
Respondents must answer all applicable questions in the questionnaire sections in order to be considered.
II. Background Information
Agency Description
SURS is the administrator of a cost-sharing, multiple employer public employee retirement system. SURS membership includes employees of the Illinois public universities and other affiliated organizations. Currently, SURS membership totals more than 200,000 active, inactive and retired participants. SURS maintains both a defined benefit plan (DB plan) and defined contribution plan. Proposals are being solicited for the defined benefit plan. To learn more about the fund, you may visit our website at www.surs.org.
Defined Benefit Plan Investment Program
As of March 31, 2016, the DB plan trust totaled $16.6 billion with a target asset allocation as follows:
Target
U.S. Equity 23%
Non-U.S. Equity 19%
Global Equity 8%
Core Fixed Income 19%
Emerging Markets Debt 3%
TIPS 4%
Private Equity 6%
Real Estate 6%
REITS 4%
Hedged Strategies 5%
Opportunity Fund 1%
Commodities 2%
Legislated Investment Restrictions Relating to the Republic of the Sudan and Iran
Effective January 1, 2016, Section 1-110.16 of the Illinois Pension Code (40 ILCS 5/1-110.16) generally requires SURS to divest from direct holdings in “restricted companies” consisting of:
1. Certain companies that boycott Israel by engaging in actions that are politically motivated and are intended to penalize, inflict economic harm on, or otherwise limit commercial relations with the State of Israel or companies based in the State of Israel or in territories controlled by the State of Israel;
2. Certain companies that have business operations that involve contracts with or provision of supplies or services to the Government of Iran, companies which the Government of Iran has any direct or indirect equity share, consortiums or projects commissioned by the Government of Iran, or companies involved in consortiums or projects commissioned by the Government of Iran; and
3. The government of Sudan and any of its agencies, companies under control of Sudan, companies established or organized in Sudan, companies identified or prosecuted by the Office of Foreign Assets in the U.S. Treasury Department as sponsoring terrorist activities in Sudan, or any publicly traded company whose principal place of business is in or conducts business in Sudan.
“Private market funds” (which include private equity funds and private equity fund-of-funds) are not subject to the divestment provisions. However, the Illinois Investment Policy Board will request that a private market fund manager consider removing restricted companies from the fund or create a similar actively managed fund having indirect holdings devoid of the companies. If such a fund is created, SURS is required to replace all applicable investments with investments in the similar fund in an expedited timeframe consistent with prudent investing standards.
State Fiduciary, Ethics, and Diversity Laws
Sections 1-109, 1-109.2, 1-110, 1-125. 1-130, 1-135, and 1-145 of the Illinois Pension Code (40 ILCS 5/1-109, 1-109.2, 1-110, 1-125, 1-130, 1-135, 1-145) contain fiduciary, ethics, and prohibited transaction provisions that may apply to investment managers. Investment managers seeking to be considered for this mandate should be familiar with and must comply with such applicable provisions of the Illinois Pension Code.
Section 1-109.1 of the Illinois Pension Code (40 ILCS 5/1-109.1) encourages the Board to increase the use of minority-owned businesses, female-owned businesses, or businesses owned by persons with disabilities as emerging investment managers, minority investment managers, broker-dealers, or vendors for services and contracts; and to increase the racial, ethnic, and gender diversity of its fiduciaries (including investment managers and consultants), to the greatest extent feasible within the bounds of financial and fiduciary prudence. To this end, the Board encourages minority-, female- and persons with a disability-owned investment managers to submit proposals to this RFP.
Section 50-37 of the Illinois Procurement Code concerning prohibitions on political contributions for certain vendors (30 ILCS 500/5037) may or may not apply to SURS investment managers or consultants. SURS is not subject to the Illinois Procurement Code, generally (30 ILCS 500/115.100). However, each investment manager and consultant should be familiar with the provisions of section 50-37 of the Procurement Code and comply with this section if the investment manager or consultant deems it appropriate.
Additional Disclosure Requirements
Section 1-113.21 of the Illinois Pension Code (40 ILCS 5/1-113.21), added by Public Act 98-1022, effective January 1, 2015, provides that no contract, oral or written, for investment services, consulting services, or commitment to a private market fund shall be awarded by a retirement system, pension fund, or investment board established under the Code unless the investment advisor, consultant, or private market fund first discloses:
(1) the number of its investment and senior staff and the percentage of its investment and senior staff who are (i) a minority person, (ii) a female, and (iii) a person with a disability; and
(2) the number of contracts, oral or written, for investment services, consulting services, and professional and artistic services that the investment advisor, consultant, or private market fund has with (i) a minority owned business, (ii) a female owned business, or (iii) a business owned by a person with a disability; and
(3) the number of contracts, oral or written, for investment services, consulting services, and professional and artistic services the investment advisor, consultant, or private market fund has with a business other than (i) a minority owned business, (ii) a female owned business or (iii) a business owned by a person with a disability, if more than 50% of services performed pursuant to the contract are performed by (i) a minority person, (ii) a female, and (iii) a person with a disability.
Each Proposer responding to this RFP must disclose this information in the form provided in Appendix B.
III. Specific Services Requested from the Investment Manager
SURS is requesting information from qualified firms to manage a global, diversified private equity fund-of-funds portfolio. SURS is seeking a platform that is diversified across key private equity strategies, and prefers the inclusion of venture capital, buyout, special situation, mezzanine and distressed/restructuring partnerships. The platform should include both primary and secondary capabilities with potential consideration given to co-investment and direct strategies. SURS prefers the platform to be global (U.S. & Non-U.S.) in orientation. SURS intends for this initiative to be ongoing and is seeking diversification across vintage year, industry sector, and strategy type.
SURS will consider the following evaluation criteria in making its decision:
· Stability and General Experience of the Firm – as measured by the stability of the financial condition of the firm and experience in providing private equity fund-of-funds management to institutional clients.
· Key Personnel – Personnel to be assigned to this account, including key professionals, applicable portfolio managers, back-up and other staff assistance, and education and experience of all such key personnel.
· Expertise – (a) Similar work performed for other clients, with references of such funds to be specified in proposal; (b) Assets under management; and (c) Investment experience broadly defined and experience as a manager of private equity funds.
· Client references – as measured by the quality of the references provided.
· Performance – Prior funds’ performance measured on both an absolute and relative basis.
· Investment Process – Consistent process implementation, as measured by return consistency, portfolio construction methodology, and the implementation of risk controls.
· Investment Philosophy and Style – The extent to which the proposed philosophy and style best complement existing philosophies and styles and meet the requirements and expectations as presented in this RFP.
· Access to Recognized Top Tier Manager Partnerships – The manager should exhibit historical investor relationships with partnerships generally recognized as being among the best at employing their type of strategy.
· Fees – Reasonableness and competitiveness of fees, as well as transparency in reporting of fees of underlying managers.
· RFP Proposal – Completeness, clarity and responsiveness to requirements as requested in the RFP and accompanying template.
IV. Diversity Goals:
SURS has established a goal that 20% of new allocations to alternative investments be made to firms owned by minorities, females or persons with a disability (MFDB). This goal is reviewed annually and presented to the Board as a component of the Investment Policy, most recently at the September 11, 2015 Board meeting. SURS encourages the selection of MFDB managers within the fund of funds portfolio.
V. Minimum Qualifications:
The Proposer must meet all of the following minimum qualifications to be given further consideration. Failure to satisfy any of these qualifications and requirements upon submittal of the Proposal will result in the rejection of the Proposal. The Proposer must certify in writing on the Minimum Qualifications Certification, Appendix A, that it meets all of the minimum qualifications. Such certification must include evidence of how each qualification is met and must be signed by an individual who is authorized to bind the Proposer contractually. Qualified firms meeting the Illinois statutory definition of “Minority owned business”, “Female owned business” or “Business owned by a person with a disability” are exempt from (7), (8), and (9) below and will be evaluated for further consideration at SURS’ discretion.
1. 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).
2. Proposing firm must agree to serve as a “fiduciary” to the Fund within the meaning of Illinois legislation and to act in accordance with all requirements and standards of conduct applicable to fiduciaries.
3. Proposer and its proposed team have all authorizations, permits, licenses and certifications required by federal and state laws and regulations to perform the services specified in this RFP at the time Proposer submits a response to the RFP. Proposer’s audited financial statements must be made available for review.
4. Proposer will comply with all legislation regarding investment restrictions, applicable State fiduciary, ethics, and diversity laws, including any additional disclosure requirements as outlined above.
5. Proposer must provide net fund-level performance track records for primary, secondary, co-investment or direct fund-of-fund strategies (please note co-investment and direct strategies are optional) as well as underlying holdings information in the provided template.
6. Proposer must have an existing global, diversified private equity fund-of-funds platform, including both dedicated primary and secondary products.
7. Proposer or one or more principals of the firm must have five years or more experience managing global, diversified private equity fund-of-funds portfolios, including both dedicated primary and secondary products. Qualified Women, Minority, or Disabled Owned Businesses are exempt and will be evaluated for further consideration at SURS’ discretion.
8. Minimum Firm Level AUM: $5 billion as of December 31, 2015, at least half of which is managed for U.S. institutional investors. Qualified Women, Minority, or Disabled Owned Businesses are exempt and will be evaluated for further consideration at SURS’ discretion.
9. Proposing firms must have been in operation as an investment management organization for at least five years, as of December 31, 2015. Qualified Women, Minority, or Disabled Owned Businesses are exempt and will be evaluated for further consideration at SURS’ discretion.
SURS retains the sole right to decide whether any Proposer is qualified to bid, including determining whether any Proposer’s qualifications are sufficiently comparable to satisfy all of the above minimum qualifications.
VI. RFP Specifications:
If, in response to this RFP, trade secrets or commercial or financial information are furnished under a claim that they are proprietary, privileged or confidential and that disclosure of the trade secrets or commercial or financial information would cause competitive harm to the person or business responding to this RFP, such claim must be clearly made and such information must be clearly identified. Bidders are required to make a good faith attempt to properly identify only those portions of the response that are truly furnished under a claim that they are proprietary, privileged or confidential and that disclosure of the trade secrets or commercial or financial information would cause competitive harm to the person or business responding to this RFP. Responses to this RFP with every page marked as proprietary, privileged or confidential will not satisfy this requirement. (5 ILCS 140/7 and 7.5) If such information is identified, the Proposer shall, in addition to the primary response, provide a separate redacted version of the RFP response suitable for release under the Illinois Freedom of Information Act (5 ILCS 140/7 and 7.5). However, such a claim is not definitive. SURS has the right and obligation to determine whether such information is exempt form disclosure under the Illinois Freedom of Information Act and no information will be considered or determined by SURS to be proprietary, privileged or confidential unless it is identified and separated as indicated herein. (5 ILCS 140/7 and 7.5)