Stanislaus County Employees' Retirement Association

REQUEST FOR PROPOSAL

Stanislaus County Employees' Retirement Association

832 12th Street, Suite 600

Modesto, California 95354

Phone: (209) 525-6393 FAX: (209) 558-4976

Request for Proposal No. 2015-02

General Investment Consultant

March 2015

SECTION1:GENERALINFORMATION

1.1PURPOSE

This Request for Proposal(RFP)2015-02 is issued bythe Stanislaus CountyEmployees’RetirementAssociation (StanCERA) for the purpose ofsolicitingproposals fromqualifiedcompanies to provide comprehensivefull-retainergeneralinvestment consultingand auxiliary adviceandservices.

Theselectedinvestment consultingcompanywill reportregularlyto the Board of Retirement(Board) workingcloselywith theBoard, Executive Director,andStaff.Theselectedcompanywill demonstrate extensive experience andsuperior capabilityforprovidingthose investment consultingservices that are critical to the success of apublic pensionsystem.Ingeneral, the selected companywill assist the BoardandStanCERA in theongoingprocess ofinvestment policydevelopment and implementation. Thecompanywill serve in a fiduciarycapacityand will acknowledge in writingthe company’sfiduciarystatus without qualification.Inallcases, the companyand its consultants will offeradviceandrecommendations to the BoardandStanCERA that is solelyin the interest of the Planparticipants and beneficiaries.

1.2PROPOSEDTIMELINEFORSEARCHANDSELECTIONPROCESS

Thefollowingis based on best estimateof theschedulefor the review andanalysis of theproposals in response to the RFP. Theschedulecan be adjustedasnecessarybyStanCERA. Eachcompanywill be notified of changes to the proposed schedule.

March 6, 2015RFPposted to StanCERAwebsite:

March 19, 2015Deadline for submission of questionsconcerningthe RFP

March 26, 2015Questionsandcorrespondingresponses posted to StanCERAwebsiteApril15, 2015 Deadline for submission of proposals and anyadditionaldocuments

April 28, 2015Evaluation completed andfinalistcompaniesselected

May 4 - 15, 2015Sitevisits to finalistcompanies, ifnecessary

May26, 2015Finalists’ presentation to Board

June 20,2015Contractnegotiationscompleted

July 1, 2015Servicesbegin

1.3PROPOSALSUBMISSION

Thedeadline for submission of the proposal isApril 15, 2015,at 4:30 p.m.PST.Please submitone completeelectronic copy, andseven (7)additionalpapercopiesofthe proposal to:

Rick Santos

Executive Director

Stanislaus County Employees’ Retirement Association

832 12th Street, Suite 600

Modesto, CA 95354

1.4ERRORSANDOMISSIONS

If aProposer discoversanyambiguity,conflict,discrepancy, omission, orothererror in this RFP,please immediatelynotifyStanCERA ofsuch error bye-mail at ndrequestclarification or modification ofthe document.

If it becomesnecessaryto reviseanypart ofthis RFP, or ifamoreexactinterpretation ofprovisions of this RFParerequired priorto thedue datefor proposals, a supplement will beposted byStanCERA on its website.Ifsuchaddendum issuance is necessary,StanCERAreserves theright to extend thedue date ofproposals to accommodatesuchinterpretations or additionaldatarequirements.

If theProposer fails to notifyStanCERA ofaknown error or anerror that reasonablyshould havebeen known prior to the finalfilingdatefor submission, theProposer shall assume the risk.Ifawarded the contract, the Proposer shall not be entitled to additionalcompensation or timebyreason of the error or its late correction.

1.5CONFIDENTIALITY

Proposersareadvisedthatmaterialscontained in proposalsare subject to the California PublicRecordsAct (Cal.Gov. Code Sections 6250 et. seq., “CPRA”),and,after thecontractaward,maybe viewedandcopied byanymember ofthe public, includingnews mediaandcompetitors.

Ifyoubelieve that anyportion of yourproposal is exempt from publicdisclosureunder theCPRA, you must marksuchportion“TRADE SECRETS”, “CONFIDENTIAL”OR“PROPRIETARY”,and makeit readilyseparablefrom the remainder of yourresponse.

Proposals thus marked in theirentiretywill not be honored.Bysubmittinga proposalwithmaterialmarked“TRADE SECRETS”, “CONFIDENTIAL”OR “PROPRIETARY”,you

representyouhave a goodfaithbeliefthat the material is exempt from disclosureunder theCPRA; andyou maybe required to justifyin writingwhysuch material should not, upon request,bedisclosed byStanCERAunder theCPRA.

IfStanCERAdenies publicdisclosureof anyportions so designated,youagreeto reimburseStanCERAfor,and to indemnify,defendand hold harmlessStanCERA, its officers,fiduciaries,employees and agentsfrom and against:(a)anyandallclaims,damages,losses,liabilities, suits,judgments,fines,penalties,costsand expenses including, without limitation, attorneys’fees,expenses andcourtcosts of anynaturewhatsoever(collectively,“Claims”)arisingfrom orrelatingto StanCERA’s non-disclosureof anysuch designatedportions of yourproposal;and(b)anyandall Claims arisingfrom or relatingto StanCERA’s publicdisclosureof anysuch designatedportions of yourproposal if StanCERAreasonablydeterminesdisclosure is deemedrequired bylaw, or ifdisclosureis ordered bya court of competentjurisdiction.

1.6RFPRESPONSECOSTS

Anycostincurred bythe Proposer in the preparation,transmittal or presentation of anyproposalor material submitted in response to this RFP will be borne solelybythe Proposer.

1.7DISCUSSIONFORMAT

StanCERAreserves the right to conductdiscussions,eitheroral or written,with thoseProposersdetermined byStanCERA to be potentialfinalists. StanCERAalsoreserves the right to clarifyminorissues with potential finalists.

SECTION2:BACKGROUNDANDSCOPEOFSERVICESREQUESTED

2.1STANISLAUSCOUNTYEMPLOYEES’RETIREMENTASSOCIATION

TheStanislaus CountyEmployees’ Retirement Association (StanCERA) is a cost-sharingmultiple-employer defined benefit plan (thePlan)coveringall permanent employees of the CountyofStanislaus and ofthe followingemployers: Stanislaus CountySuperior Court, Cityof Ceres, Hills Ferry CemeteryDistrict, East Side Mosquito Abatement District, Keyes Community Services District, Salida Sanitary District, and the Stanislaus Council of Governments .

StanCERA is administered by a Board of nine trustees and one alternate trustee. Four of the nine trustees are appointed by the County’s governing body. One trustee, the County Treasurer, an ex-officio member, is elected by the County electorate, while the remaining four trustees and alternate trustee are elected by Plan members. The Board has exclusive management responsibility for the control and investment of Plan assets. The Board operates under the “prudent person” rule as defined in California Government Code section 31595.

StanCERA has been in existence since 1948 and administers retirement benefits for over 8,000 participants. As with most other government pension plans, StanCERA has evolved from a very young system with no assets and no retirement liabilities to a mature system with nearly $2 billion in plan assets and just over $2 billion in plan liabilities.

Today, understanding and implementation of a sound investment governance process, and having the ability to effectively monitor and manage pension risk, are paramount. The StanCERA Board recently affirmed a mandate to play a greater role in the investment governance process and manage its pension risk as efficiently as possible. To that end, StanCERA plans to provide a substantial portion of the investment governance process and liability monitoring internally. The intermediate-term vision for the Organization is to have internal staff manage the governance process with external consultants used mainly as an independent reference point for the Board of Retirement.

Until that time, the intent of the StanCERA Board is to continue with a full-time consultant that provides the System with a set of core services, which are detailed in the Core Scope. These core services are currently provided by StanCERA’s investment consultant. Additionally, StanCERA is seeking a second, independent bid for auxiliary services, which are detailed in the Auxiliary Scope, and entail more detailed and sophisticated processes, analyses, implementation, monitoring and reporting on the investment governance and pension risk process.

While drafting the Core and Auxiliary Scopes, it became evident that there exist common service elements in both. It should be understood that the Auxiliary Scope of Services is more sophisticated and analytical in nature. It is more hands on and executory and requires a greater understanding of StanCERA’s data and liability structure, and takes a more “risk centric” approach. It will also require more time working with and educating StanCERA staff. The Auxiliary Scope seeks to create a much higher standard of education, awareness, transparency and administrative and process efficiency.

2.2INVESTMENTPROGRAM

StanCERA is governed bythe CountyEmployees’RetirementLaw(CERL) of1937 (1937Act)and theCalifornia Constitution, article XVI,section 17, whichprovidefor prudent expert administration ofthe Planandinvestment of its funds. Thoseprovisionsalsorequirethat the Boarddiversifytheinvestments of the retirementsystem so as to minimizethe riskofloss and to maximizethe rateof return, unless under thecircumstancesit is clearlynot prudent to do so. Underthese laws, thetype andamount of Planinvestments as wellas the qualityof securities is not specificallydelineated;rather,the investmentsare madeconsideringthe overallbestinterest of StanCERA planmembersandbeneficiaries.

Under theprovisions of theCERLthe Boardmanages the Plan (aka “RetirementSystem” or“Fund”).The specificresponsibilities ofthe Boardinclude but arenot limited to:

Establishingandimplementinginvestment policy
Recommending employee andemployercontributionrates to the Board ofSupervisors andothergoverningemployerbodiesbased on actuarialrecommendations
Establishingpolicyfor the operation ofStanCERA

Thefundhas an approximatemarket valueof $1.8 billion as of December 31, 2014,and ismanaged byoutside investmentmanagers.The Boardhasadopted the followingstrategic policyassetallocations:

AssetClass / Current Allocation / Target
Allocation / Allowable Range
US Equities / 48.6% / 38.2% / 32.2%-44.2%
Non-USEquities / 16.8% / 18.0% / 15.0%-21.0%
FixedIncome / 27.6% / 29.8% / 26.0%-33.6%
RealEstate / 1.8% / 3.5% / 1.0%-4.5%
Direct Lending / 4.0% / 7.5% / 2.5%-9.0%
Infrastructure / 0.0% / 3.0% / 0.0% - 4.0%

2.3INVESTMENTMANAGERS

StanCERAcurrentlyutilizes the followingexternalmanagers to execute its strategicassetallocation:

AssetClass / InvestmentManager
Large Cap Equity / BlackRock
Jackson Square
Dodge & Cox
Mellon Capital Management
Small Cap Equity / Legato Capital
Capital Prospects
International Equity / PyramisGlobalAdvisors
LSV Asset Management
Domestic FixedIncome / Dodge & Cox
PIMCO
RealEstate / American Strategic Value Fund
BlackRock US Real Estate
Greenfield Gap
Morgan Stanley Prime
Direct Lending / Raven Capital Management
White Oak Pinnacle
Medley Capital
Infrastructure

2.4 SCOPEOFSERVICES

StanCERA has identified certain criteria to be used as a basis for the Core and AuxiliaryScopes of work, which are set forth in this RFP, attached hereto and made a part hereof. It is the proposer’s responsibility to propose two complete Scopes of Work, which explains in detail the proposer’s offering. These proposed Scopes of Work will be used as the basis for negotiating the final Scopes of Work for inclusion in the resultant agreement. The RFP contains the minimum list of services and deliverables the selected proposer is expected to provide StanCERA.

As a reminder, while the two scopes may have some common elements in both, the Auxiliary scope should be viewed as more hands on, executory and analytical in nature. It will require a greater understanding of StanCERA’s liability structure and takes a more “risk centric” approach to managing pension risk. The foundation on which the Auxiliary scope of services rests is based on a desire to create a much higher standard of education, awareness, transparency and administrative and process efficiency. The Auxiliary scope should be viewed as an independent and modularized addition to the core set of services and should be bid accordingly.

CORE SCOPE OF SERVICES

TheCore Scope of Servicesrequiredinclude, but are not limited to, the following:

1.InvestmentPolicy and AssetAllocation

a.Conduct an annualcomprehensivereview andanalysis of investmentpolicies,objectives,assetallocation,andportfoliostructure,andrecommendchanges, if appropriate.Review and update the system’s investment policy statement.

b.Work with staffand the actuaryto conduct an asset/liabilitystudyof thefundatleasteverythree years,includingrecommendingmethodologies,assumptions,assetclasses forconsideration,andalternative assetallocations.

c.Develop an appropriateinvestmentmanagementstructurefor the systemandeachassetclass that considers the role ofactive versuspassive strategiesandinvestmentmanagementstylesunderdifferentmarket conditions.

d.Analyzethe investmentcharacteristics of availableassetclasses andtherisk/returnpotential of alternative asset-mixpolicies.

e.Developbasic policies,guidelines,andprocedures forrebalancingthe asset mix.

f.Advisethe systemabout new developments in investmentmanagementtechniquesandportfoliomanagementstrategies. Analyze how newtechniquesmight improvetheinvestmentprogram and whethertheyshould be implemented.

g.If necessary provideadviceandrecommendations on various otherinvestment policyissuesincluding, but not limited to, rebalancing, useofsoftdollars,securitieslending, proxyvoting, etc.

2.InvestmentManager Search,Selection and Review

a.Provideadviceandrecommendations on investmentmanagerallocationandstructure,managermandates,fees, and performance benchmarks.

b.Provideongoingmonitoringandoversight of investment managers to ensurecompliancewith lawsandregulations,investmentpolicies and managermandates.Have periodicdiscussions with managers on investmentperformance andorganizational issues (such aschanges in ownership,staff,newproducts,etc.)

c.Provide advice on manager retention/termination issues.

d.Perform individual investment manager searches as needs arise for additional or replacement investment managers based on the approved Investment Manager Structure. Prepare a list of qualifying candidates, set up presentation schedules in consultation with StanCERA, attend interview sessions, and perform due diligence visits as needed.

e.Assist with negotiatingappropriateinvestmentmanagementagreements.

f.Assist in contract (side letter) negotiations with general partner’s counsel on alternative investments.

g.From time-to-time monitor andevaluate investmentmanagertradingandtransactioncosts.

h.Conducton-site due diligence meetings with potential managersprior to hireandwith currentmanagersatleasteveryfouryears.

i.Assist with the transition of managerswhohave beenhired or terminated bythe Board.

3.Performance Monitoring and Reporting

a.Compare the investmentperformance of thetotal fund, assetclasses, and investmentmanagers to relevantbenchmarksand“peergroup”samples.

b.Conductperformance attributionanalysis to determine the valueadded byinvestmentpolicy,assetallocationandsecurityselection.

c.Presentmonthly and quarterly performance reportsto the Board of Retirement.

d.Recommendappropriateperformance benchmarksfor the total fund,eachassetclass,portfoliocomposite, andinvestmentmanager.

e.Provideaccess to performance evaluation and attributionanalytics, tools and software.

f.Trackandreportunanticipated or emergingmarket issues that mayimpact StanCERAimmediatelyto theExecutive Director.

g.Providebasic riskreportingandadvisoryservices includingmonitoring,analysis,andreportingon differentmeasures of risk.

h.Assist StanCERA staffwith investmentrelatedissues as needed.

4.Client Serviceand Education

Attendtwelve regular monthly meetings of the Board, as well as special meetings pertaining to investments that may be necessary from time-to- time.
Provide monthly updates on investment manager performance and actual versus target asset allocation. On a quarterly basis provide comprehensive rates of return and relevant portfolio characteristics comparing individual investment manager performance against management style, and composite exposures, peer managers’ and indices’ for various time periods.
Communicateandcoordinateeffectivelywith StanCERA staff,actuary,counsel, and custodianbank.
Respond to inquiriesbetweenmeetings in an appropriateand timelymanner.
Reportanysignificantchanges in the company’sownership,organizationalstructure,andpersonnel in atimelymanner.
Assist on specialprojects as neededfrom time-to-time.
Provideall otherinvestmentadvisory-relatedservices as requested.
Coordinate or provideeducation to Boardandstaffon current investmenttrends and topics, potential new asset class investing, and other investment topics of assistance to StanCERA in meeting its fiduciary duty to invest the assets of StanCERA prudently in meeting the overall investment objective of securing sufficient resources to meet current and future retirement benefit obligations.
Makeavailableall firm research, includingproprietaryresearch,and ensure research staff is available for consultation with StanCERA representatives.

5.Review,Search and Selection ofOtherInvestment-RelatedVendors

Provide advice and recommendations on custodial arrangements (including custodian review and search services).
Assist with evaluation,searchandselection involvingotherinvestment-relatedconsultantsandvendorsasrequired.

B.AUXILIARY SCOPE OF SERVICES

The Auxiliary Scope of Services requiredincludes, but are not limited to, the following:

1.Implement efficient processes related to portfolio rebalancing

Direct or implement tactical rebalancing
Analyze marginal cost and benefits (implicit and explicit) regarding whether to rebalance versus not rebalancing
Analyze the cost/benefit to rebalance to target weights versus rebalancing within the range
Monitor and direct or implement a rebalancing overlay strategy using financial derivatives
If necessary, present and implement new rebalancing strategies

2.Monitor manager investment policy compliance

Automate daily processes used to monitor manager quantitative investment policy compliance
Work directly with investment managers when compliance issues arise
Revise when necessary, investment policy statement concerning compliance

3.Cash management

Monitor daily cash balances within each individual manager account
Optimize current system contributions between benefit payments and various asset classes within the portfolio such that cash is fully invested and/or used in the most efficient and effective manner
Direct or implement a cash overlay program

Recurring and idle manager cash

Plan sponsor contributions (if applicable)

Efficiently manage capital calls

Monitor and present results (risk and return) from a cash overlay program

4.Asset liability management

Recommend, assist and monitor implementation of an asset liability strategy
Understand basic actuarial principles and government pension liabilities
Recommend, assist and monitor the implementation of a glide path plan
Recommend and assist in the preparation and presentation of stochastic analyses concerning projected System funding ratios and contribution rates under various economic scenarios and environments
If necessary, recommend, gather data and assist in quarterly reporting of the market value of System liabilities
Recommend and direct if necessary, the use of derivatives to immunize liabilities
Recommend and direct if necessary, the use of derivatives as part of a portfolio insurance strategy
Optimize hypothetical bond portfolios from a universe of permissible bonds that maximize the ability to pay benefits into the future while achieving a maximum return and / or minimize risk.
Peer review internal staff’s work on various asset liability reporting methodologies

5.Manager performance (quarterly or semi-regular basis)

Benchmark analyses

Analyze past returns and recommend different or optimal benchmarks

Monitor manager investment style, correlations and tendencies under various economic conditions

Risk Contribution

Analyze and report manager and asset class contribution to overall portfolio risk

Analyze and report risk factor exposures retrospectively and prospectively

Analyze, optimize and report efficient/inefficient manager contributions to overall portfolio and asset class risk

Analyze and report manager and asset class contributions to an immunizing or partial immunizing strategy

Analyze and report manager contribution to value added relative to a passive investment
Develop, recommend and implement manager continuation policies and procedures
Analyze, report and interpret various risk measures (Treynor, M-squared, VAR, etc.) across manager and asset class

6.Trading costs

Analyze and advise on trading costs (explicit and implicit) on an annual basis
Analyze and advise on foreign exchange costs, risk and returns on an annual basis

7.Other Investment Programs

Occasional monitoring of soft dollar arrangements
Analyze and make recommendations regarding securities lending portfolio
Analyze and make recommendations regarding recapture programs
At various times, educate and discuss proxy voting issues with Board of Retirement
Monitor and make recommendations regarding shareholder litigation issues

8.Alternative Investments

Verify the reasonableness of reported asset values of illiquid investments
Analyze and report various return measures to the Board of Retirement
Reconcile and explain income and expense reports from various managers
Assist in or perform additional due diligence of current or prospective new managers
Attain a general, high level knowledge of various investments within the alternative portfolio

Capital market expectations

Triennially, produce and present rigorous and theoretically sound asset class and inflation expectations on both a short and long-term basis and make recommendations regarding the actuarial discount rate
If necessary, assist and recommend awareness and potential changes to capital market expectations on an annual basis between triennial asset/liability studies

10.Peer review

Provide peer review services for internal staff’s investment related work

11.Custodian bank

If necessary, monitor activities of custodian bank and assist in coordinating activities with investment manager.
Monitor service contracts with custodian bank and investment firms to ensure compliance with contract terms

SECTION3:PROPOSALPROCEDURES

3.1MINIMUMQUALIFICATIONSFORPROPOSAL

The Proposer must meet all of the following minimum qualifications to be givenfurther consideration.Failure to satisfy any of theminimum qualifications will result in the immediate rejection ofthe proposal:

Stanislaus County Employees' Retirement Association

REQUEST FOR PROPOSAL