SAN FRANCISCOCITY AND COUNTY
EMPLOYEES’ RETIREMENT SYSTEM
GLOBAL CUSTODY AND SECURITIES LENDING RFP
Submitted Questions from Interested Bidders
General
Can you please describe the expected relationship between the custodian's performance measurement group and SFERS general investment consultant?
SFERS investment staff utilizes the custodian bank for performance measurement services. The general consultant, using data provided by the custodian, separately generates performance measurement and analytics report.
Can you please articulate the importance, if any, of having components of the custodian's relationship team located in San Francisco?
SFERS has no preference on the location of the custody relationship and servicing team. The critical factors are tenure, depth of experience, and responsiveness.
Can you please articulate the importance/value of having SFERS relationship manager attend monthly Board meetings?
SFERS believes that a representative of the custodian relationship and servicing team should be present and attend monthly Board meetings. SFERS believes that custody is not only a vendor relationship but a business partner.
Can you please describe the value to SFERS Investment staff of having direct access to all resources and experts at the successful bidder's firm?
SFERS prefers to have direct access to critical personnel required in the delivery of services. We also prefer that the client relationship manager be abreast and keep track of all issues at all times.
The RFP provides excellent plan details, required services, and asks for all the relevant details of each candidate firm's qualifications and capabilities. Please describe, if possible, any intangible components that a service provider may possess which would make a meaningful difference to SFERS. Intangible components that would differentiate a firm to SFERS.
SFERS believes that an organization with relevant experience in delivering custody services for multibillion dollar plans and the depth of client work should have a reasonable level of understanding of the intangibles necessary to achieve success. Client service and collaboration are critical to SFERS.
Investment Analytics & Performance Measurement
Are you interested in seeing pricing for daily or monthly reporting?
As of the current time, monthly reporting is sufficient to meet the requirements of SFERS. However, we will consider daily pricing and return calculations only if the cost benefit is acceptable.
Are you interested in basic rates of return or drill-down/detailed level rates of return (e.g., sector level)?
SFERS is interested in both levels.
Attribution analysis (Page 29 # 6)
Are you interested in seeing pricing for daily or monthly reporting?
As of the current time, monthly reporting is sufficient to meet the requirements of SFERS. However, we will consider daily pricing and return calculations only if the cost benefit is acceptable.
Summary of Service requirements (Page 5)
You mention Performance measurement and analytics. Are you interested in Characteristics reporting as well?
Yes.
VaR(Page 29 #4) –
Are you interested in seeing pricing for daily or monthly reporting?
As of the current time, monthly reporting is sufficient to meet the requirements of SFERS. However, we will consider daily pricing and return calculations only if the cost benefit is acceptable.
Would you be interested in the VaR reporting on all 41 separate accounts?
Yes, depending if the cost benefit is acceptable.
Approximately how many asset per account; 1-50, 51-200 or over 200
Please refer to the Asset Holdings furnished with the RFP (Appendix G). A sort of the spreadsheet using Column D should provide you with an indication of the positions held within each manager account.
Liquidity
What are your average cash balance levels, both in USD and foreign currency? If there are foreign currencies, what is the currency breakdown?
US Cash balances tend to range between $100 million and $150 million. Non-dollar balances (held at the manager level) are less than $30 million (mostly Euro).
What investment vehicle (STIF, Money Market Fund, or other) is utilized for short-term cash today? What investment guidelines does the client have (regarding permissible instruments, counterparty limits, etc.)?
SFERS utilizes a STIF vehicle for short term cash.
Alternative Investments / Private Equity and Real Estate Fund Services
What alternative administration services (including reporting capabilities) do you currently receive? Do you have an outside provider for alternatives accounting and administration or is current administrative support from “in-house”?
SFERS does not receive any level of services beyond line item reporting from the custodian bank. The consultants provide granular information to SFERS and staff keeps track of certain information where appropriate for accounting and oversight purposes. SFERS would like to understand the custodian bank’s ability to support alternative investments.
What is the oldest and average vintage year for your alternative investments?
The oldest vintage year is 1987. We do not monitor or track the average vintage year.
Are you receiving Fund-Level Performance Reporting with benchmarking for your alternative assets?
SFERS does not receive any level of services beyond line item reporting form the custodian bank. The consultants provide granular information to SFERS and staff keeps track of certain information where appropriate for accounting and oversight purposes. SFERS would like to understand the custodian bank’s ability to support alternative investments.
How are your fund performance data and/or portfolio company look-through data currently produced, stored & accessed?
SFERS does not receive any level of services beyond line item reporting form the custodian bank. The consultants provide granular information to SFERS and staff keeps track of certain information where appropriate for accounting and oversight purposes. The information is currently tracked through Excel Spreadsheets. SFERS would like to understand the custodian bank’s ability to support alternative investments.
What type of benchmarking do you use today for your alternative investments?
Benchmark is S&P + 500 bps.
How are alternative investments organized into the current account structure? Please confirm if there is one alternative investment in each alternative account.
Each account is a single LP interest.
Please elaborate on the nature of your TIPS and Opportunistic accounts. Do these investments fall with your alternative investments?
We do not currently have a separate TIPS allocation – fixed-income managers have discretion within their mandate to purchase (subject to guidelines). Opportunistic fixed-income is mostly comprised of LP interests in distressed debt and other non-traditional fixed-income investments. These investments are reported within Fixed-Income.
The RFP refers to “tracking” for private equity – please elaborate on this intended activity/service.
SFERS would like to know the distinct levels of services available from the custodian bank beyond line item reporting. Services include capital call management, document management, roll forward and cash flow adjusted valuation, use of private equity tracking software (e.g., Private I, Private Edge, Investran, etc.) for company and position holding information, IRR return calculations, and benchmarking.
The RFP refers to both “processing/valuing”, “drilldown” and “tracking” for private equity – please confirm scope across private equity requested for response to RFP.
SFERS would like to know the distinct levels of services available from the custodian bank beyond line item reporting. Services include capital call management, document management, roll forward and cash flow adjusted valuation, use of private equity tracking software (e.g., Private I, Private Edge, Investran, etc.) for company and position holding information, IRR return calculations, and benchmarking.
Foreign Exchange
Can you share annual FX volumes (USD$ Equiv) by currency pairs, broken down between custodian flow and third party flow.
This information was provided in the fee section of the RFP.
3rd Party FX / 71,577Custody FX Trades / 5,264
Are portfolio managers and/or sub advisors given full discretion when managing FX needs?
Yes.
Does discretion vary by asset class?
No.
Please describe your FX process from both an internal and external management perspective including when you trade with the custodian vs. a third party, and the method of execution.
Both internal and external managers have the flexibility to trade FX with the counter-party of their choice and are under no obligation to trade FX with the custodial bank. All managers are subject to best execution rules (per the investment policy statement).
How is the incumbent custodian instructed for FX transactions currently for: Trade related FX to settle security trades – standing instruction or swift messaging? Or, third party? Asset Servicing (dividends, income, tax reclaim, corporate actions) – standing instruction or swift messaging? Restricted Markets – standing instructions or swift messaging?
Investment managers have discretion on how they execute FX transactions and are responsible for determining the method of execution and venue.
Are there currently any special pricing arrangements or execution processes, e.g. restricted market exceptions, in place with the incumbent custodian? If so, please describe.
None.
Can you provide an FX transaction report, preferably quarterly?
Not at this time.
Compliance
What frequency do you currently receive Compliance Monitoring reporting? daily or monthly?
Monthly.
How many accounts, and or plans, are included in your Compliance Monitoring services?
All separate accounts are subject to compliance monitoring.
Do you need or require look through capability for your comingled funds?
Look through is a desired service.
Securities Lending
Can you give the details on what the NTGI fund is allowed to purchase?
Kindly read the RFP. This is specified in Appendix H.
Please provide details on the assets that in the Liquidation Fund if those assets will need to be moved over to the new lender?
The liquidation fund has been closed.
Are there any current restrictions on the program? i.e. Brokers, countries, % on loan etc…
None.
What is the current fee sharing arrangement?
SFERS expects each proposer to recommend their best fee sharing arrangement. The existing arrangement is not being disclosed.
Will you be soliciting securities lending only bids?
Yes. Kindly read the RFP.
Benefit Payments
Who provides this service today?
Benefit payment services are delivered by the City and not by the custodian bank.
Who is the recordkeeping agent?
This is not applicable to this RFP.
Can you provide some historical lump sum payment information?
This was disclosed in the RFP.
Number of Pensioners Receiving Monthly Payments: 25,190
Number of Monthly ACH Payments: 12,595
Number of Monthly Check Payments: 12,595
Do you have any information related to stop payments?
No information at this time.
Would SFERS be interested in a participant website?
We would like to consider such an option and review the merit of such a platform.
Miscellaneous
Do you require independent derivative valuations services for you OTC derivatives?
SFERS is contemplating having the option to implement an independent derivative valuation service for OTC derivatives.
We understand you utilize Barra One and Bloomberg internally. What other portfolio management and/or accounting systems do you utilize internally and what 3rd parties should we expect to interface with, in the event we are awarded a contract?
BarraOne, Bloomberg and ISS. Additionally, SFERS contemplates granting their third party auditor with read only access to the custodian’s on-line platform in order to expedite the review and preparation of monthly and annual accounting audits.
Please describe your rigourous and formal reconciliation process such that we understand and incorporate the scope of your requirements in our RFP response.
The manager reconciliation process is very important to accounting and audit. They prefer that the custodian bank and investment managers reconcile before audited monthly statements are rendered. SFERS accounting and audit group would be an active participant in such reconciliations.
Do the fees & worksheets count towards our 250 page limit in our Response?
No.
What is the month end accounting and performance reporting deadline?
The audited accounting is completed on the 7th to 10th business day for traditional asset classes, and performance comes 2 days later.
Are there specific daily reporting requirements (i.e., for internally managed portfolios)?
None at this time.
Securities Lending
Do you have any legacy investments or unrealized losses that will need to be financed?
None.
Please provide a list of all anticipated investments that would need to move from the current service provider.
None.
Will you place any limits on the service provider related to total outstanding balances, minimum spreads, counterparty limits, proxy voting, etc.
At the current time, SFERS has not imposed any restrictions except for the investment guidelines for the reinvestment of cash collateral.
Please provide gross income earned, net of borrower rebates for Fiscal Years, 2011, and 2012.
This information is not being disclosed at this time.
What is the current fee split with your existing provider?
SFERS is not disclosing this information at this stage of the RFP process.
Do you have a preference for a commingled or separate account for management of collateral?
There is no specific preference. However, SFERS is contemplating a separate account for improved control.
The estimate request asks for backward looking data from 1/1/12-12/31/12, would you prefer 6/30/12-6/30/13 as it’s a better representation of the current market conditions?
As stated in the RFP, the backward looking estimate is from January 1, 2012 to December 31, 2012.
Are exclusive arrangements permitted?
SFERS prefers an agency lending model and not a principal exclusive program. Any exclusive program will have to be conducted on an agency basis and SFERS would prefer total indemnification for all types of losses regardless of amount.
Please provide updated investment guidelines if separate account desired.
Appendix H would be the maximum investment guideline specific to separate account for the reinvestment of cash collateral. SFERS reserves the right to further de-risk the program and to select an investment guideline suitable to their risk profile.
What non-cash collateral is acceptable?
SFERS prefers the safe harbor of ERISA DoL PTE-81-6: cash, irrevocable letters of credit and US Treasuries and Governments.
Please identify which funds in Appendix G should be included in the lending estimate as there appears to be several commingled funds that may be out of scope.
Within the Asset Holdings Spreadsheet in Appendix G, use Column D sort to determine the current accounts that are lending. Investment Manager Accounts with “-SL” are currently lending.
Is there an expectation that OTC derivatives be (extensively) added to the investment program or that there will be a substantial increase in the current volume of derivative activities?
SFERS is contemplating having the option to implement an independent derivative valuation service for OTC derivatives. The projected increase in volume is unknown at this time.
Similar to PIMCO which was added to the portfolio for separately managed/ local emerging markets trade settlement, can you comment on the entire Fixed Income portion of your targets in Emerging Markets? Will targets be met as “separately managed”?
EM debt is currently 10% of fixed-income (target is 7%). Currently, the majority of this exposure is obtained through an investment with GMO employing an institutional MF. PIMCO has the discretion to invest in individual securities and commingled funds (or other fund vehicles) within a separate account, as they deem appropriate in order to obtain the necessary exposure.
Page 32 of RFP relates to benefit payments "for review purposes" only. Instead of full benefit payment services which include retiree benefits "outsourcing", check/ACH payments, tax reporting, retiree support, etc., will SFERS examine the treasury management/DDA support only - for check mailing/clearance?
Benefit Payment Services is for review purposes only to assist SFERS understand a contingency disaster recovery plan. Therefore, we would require all the services as noted in your question.
Are there any strategic system changes or processes that we should be aware of to better align our services and capabilities?
There are no contemplated systems changes or processes that we know of at the current time.
Can we have a broader explanation of SFERS' need for Treasury/Cash Management, as listed on Page 57 of the RFP? Does it correspond to DDA/ Cash Concentration services and related volume?
The treasury cash management services are primarily for disbursements, payment of expenses, capital call management and day to day wiring of funds for funding managers or rebalancing.
Is a principal exclusive securities lending arrangement contemplated by SFERS?
SFERS prefers an agency lending model and not a principal exclusive program. Any exclusive program will have to be conducted on an agency basis and SFERS would prefer total indemnification for all types of losses.
Securities Lending
Could you please define the calculation for the ‘Average Daily Spreads Net of Rebate’ in sections ‘I. Lending Volume’ and the ‘Calculations Worksheets’.
Average daily spread net of rebate is the average of the total demand and reinvestment spread less the rebates owed to the borrower.
Alternative Asset Servicing
Would SFERS consider an independent bid for Alternative Asset Servicing?
This is not contemplated at the current time.
Accounts & Market Value
There are several global markets noted on page 50-51 that indicate transactions were processed, but they have zero market value, have those markets been closed?
For most instances where this is the case, the securities are depository receipts (i.e. ADR, GDR, etc.) not held in the local country and are therefore considered US for fee purposes. In other cases, while the market values may be zero as of 12/31/2012, those markets may not necessarily be closed. Based on a review of transactions, only 169 of 177,563 transactions are potentially impacted by this and should not materially impact fee estimates.