State Universities Retirement System of Illinois (SURS)
Request for Proposal
Master Custody, Related Services &
Securities Lending
November 2006
Table of Contents
I. RFP Summary Statement 2
II. Background Information 2
III. Scope of Services 4
IV. RFP Specifications 7
V. Selection Process 9
VI. Projected Schedule of Events 10
VII. Minimum Qualifications 10
VIII. Selection Criteria 11
Master Custody and Related Services Questionnaire Appendix A
Exhibits (available online at www.surs.org)
Listing of SURS Managers Exhibit A
Detailed Asset Listing as of 9/30/06 Exhibit B
Transactional Summary (6 months ending 6/30/06) Exhibit C
Letter to SURS Managers regarding IL Public Act 94-79 (Sudan
Divestment Legislation) Exhibit D
Policy Requiring Certification of Compliance With Regard to Certain
Prohibited Predatory Lending Practices Exhibit E
Quiet Period Policy (Pending SURS Board Approval) Exhibit F
State Universities Retirement System of Illinois (SURS)
Request for Proposal
November 2006
Master Custody, Related Services & Securities Lending
I. RFP Summary Statement
The State Universities Retirement System of Illinois (SURS) is soliciting proposals to provide comprehensive domestic and international master trust/custodial services (acting in the capacity of a plan fiduciary) including, but not limited to securities safekeeping, settlement, valuation and lending; performance measurement; foreign exchange; collection of income; and providing a management/accounting and information retrieval system. SURS will consider separate bids for: 1) custody with securities lending; 2) custody with no securities lending; 3) stand alone securities lending. The product solicited in this request for proposal (RFP) herein will be referred to as the “subject product.” A firm submitting a proposal is referred to as “proposer” or “candidate.”
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 public universities and other affiliated organizations. As of June 30, 2006, SURS membership totaled more than 181,000 active, inactive and retired participants. SURS maintains both a defined benefit and defined contribution plan. Proposals are being solicited for the defined benefit plan.
Defined Benefit Plan Investment Program
SURS investment program, as of September 30, 2006, totaled $14.6 billion. The adjusted strategic target asset allocation as of September 30, 2006 is as follows:
U.S. Equities – public markets 37.5%
U.S. Equities – private markets 5.0%
Non-U.S. Equities 18.5%
Global Equities 5.0%
Fixed Income 21.5%
Real Estate 6.0%
TIPS 4.0%
Opportunity Fund 2.5%
Exhibit A contains a listing of SURS investment managers and the corresponding market values of the portfolios under management for SURS. A detailed asset listing as of September 30, 2006, is provided as an attachment in Excel format (Exhibit B). Exhibit C contains a transactional summary for the SURS Total Fund for the six months ending June 30, 2006. SURS Annual Financial Report as of June 30, 2005, is available for download at www.surs.org.
Legislated Investment Restrictions Relating to the Republic of the Sudan
In 2005 the Illinois General Assembly passed Public Act 94-79, restricting investment in companies domiciled in, managed or controlled by, or doing business with the Republic of the Sudan. SURS investment managers are required by law to abide by the restrictions. Exhibit D contains a letter sent by SURS to its investment managers and provides information relating to these Sudan-related investment restrictions.
Predatory Lending Certification Requirements
In September 2006 the SURS Board of Trustees adopted the Policy Requiring Certification of Compliance With Regard to Certain Prohibited Predatory Lending Practices. To the extent consistent with the Board’s fiduciary duties, it will obtain a certification by May 15 of each calendar year from financial institutions doing business with SURS certifying that the institution and any of its affiliates and operating subsidiaries do not make, invest in, or service loans as described in the above mentioned Policy. The Policy is available for download for your review as Exhibit E.
III. Scope of Services
The following represents the general custody services required by SURS. The custodian will be responsible for that property which it receives from the System, and the System’s investment managers.
The general responsibilities under the contract will include, but not be limited to, the collection of income, disbursements of funds, and monthly reporting of all transactions within compliance of generally accepted accounting principles and the laws under which SURS operates within the State of Illinois.
The proposer must be able to provide all of the services listed below unless otherwise indicated:
A. ACCOUNTING
1. Trade date multi-currency (local and US dollars) accounting for all securities and full accrual accounting for all assets.
2. Accounting for the following:
a. Dividends and interest, corporate actions (including mergers, acquisitions, tenders, stock splits and dividends, warrants and spin-offs)
b. Securities lending
c. Domestic and international fixed income and equity portfolios
d. Equity real estate and REIT portfolios
e. Futures and multi-currency derivatives
f. Private equity, including domestic and non-US limited partnerships for LBO’s, venture capital, etc.
3. Payable date posting for dividends, bond interest and principal, and interest and paydown on mortgage pass-through certificates.
4. Accounting must be on a fiscal year basis (July 1 - June 30).
5. A secondary pricing source for comparison to the primary source for pricing securities.
6. Investments must be reported at cost and market value.
7. The proposer confirms that all information concerning holdings and transactions will be available for inquiry, download or print capabilities.
B. SECURITIES SETTLEMENT
1. Participating member and access to securities settlement through DTC, Federal Reserve wire system, PTC, and at other depositories (both domestic and international).
2. The ability to settle physically held securities.
3. The ability to execute foreign exchange transactions.
4. Provision of buy-fail float and contractual settlement date posting of sales.
5. Trade data must be electronically accessible by SURS, its investment managers, and consultants.
C. CASH MANAGEMENT
1. Provide a Short Term Investment Fund (STIF) for daily cash sweeps.
2. Provide for same day settlement of cash trades, such as physical, DTC, and Fed wireable repo and term purchases.
3. Transfer cash between accounts, make and accept wire transfers of funds (including provision of Fed reference numbers upon request), and accept fund contributions via ACH.
D. SECURITIES LENDING
Provide securities lending services for eligible domestic and international securities.
1. Establish a list of eligible borrowers and a maximum amount that may be borrowed by each borrower. Conduct ongoing reviews of borrowers' qualifications.
2. Require that all loans of securities be collateralized by either cash, securities or letters of credit of mutually acceptable counterparties.
3. Require competitive market levels of collateralization for domestic and international securities, including accrued income.
4. Monitor collateral levels daily. Obtain additional collateral if mark-to-market values fall below acceptable levels.
5. Collect all interest or other distributions with respect to all loaned securities.
6. Make available a daily report of collateral, identifying daily collateral required and pledged, and a monthly report on securities lending activity and outstanding loans, including amounts by borrowers.
7. Provide indemnification against borrower default.
8. Allow for and cooperate with a third party securities lending custodian (if requested) and associated vendors.
E. CORPORATE ACTIONS, CLASS ACTIONS AND PROXY PROCESSING
1. In a timely manner, provide annual reports, proxy voting cards, and proxy statements to SURS’ proxy voting agent.
2. Timely notification to SURS’ investment manager of corporate actions regarding conversion privileges, issuance of rights, mergers, tender offers, reorganizations, and other actions requiring decisions by SURS’ investment managers.
3. Timely notification of class action litigation and provision of the necessary securities information to SURS.
4. Filing claims for securities class action awards and monitoring collection of the amounts to which the System is entitled.
F. TECHNOLOGY
1. Provide PC- or workstation-based system with access to management information and accounting systems with the capability of providing the following information:
a. Current and historical prices, market values, and exchange rates in effect at times of pricing international securities
b. Composite portfolios
c. Current and historical transactions by security; by account; by asset class
d. On-line access to current and historical holdings in any aggregate
e. Customized reports as required
f. Ad hoc query and reporting
2. Provide state-of-the-art back-up systems to minimize loss of data and provide instant availability.
3. Provide staff with the ability to review all externally managed portfolios.
G. REPORT REQUIREMENTS
1. Provide audited monthly holding reports to be received no later than 10 working days after month-end for on-line reports and hard copy reports.
2. Provide accurate monthly, quarterly, and year-to- date reports on all transactions, income, and other pertinent investment data, in a format acceptable to SURS, no later than 10 working days after the end of each month.
3. Provide monthly reports in a format acceptable to SURS.
4. Provide other reports as may be requested by SURS.
5. Provide annually the Statement on Auditing Standards “SAS” No. 70 report on processing of transactions by service organizations.
6. Provide certification from the trustee that the reported information is complete and accurate.
7. Monthly and annual securities lending reports.
8. Reports of daily transactions including domestic trades affirmed, unaffirmed, failing, pending, etc.
9. Monthly performance measurement reports to be received no later than 12 working days after month-end.
10. Quarterly performance measurement, attribution, and other analytic reports.
H. PERSONNEL
1. Proposer must make presentations as required to the Board to discuss services related to SURS.
2. Proposer should provide the personnel to facilitate audit access to SURS’ staff or its designated agents for the purpose of verifying the integrity of proposer’s operations for the SURS account and all data input and output in case such an audit is deemed necessary.
IV. RFP Specifications
A. Submission Deadline
The completed RFP must be delivered by 5:00 pm CST December 15, 2006. Earlier responses are welcome. Any RFP delivered after the deadline may not be considered. Seven (7) hard copies of the proposal shall be submitted, each in a 3-ring binder, indexed with each section separated by properly labeled tab dividers. The name of the firm shall be placed on the front cover and spine, and shall contain all original signatures. Completeness, clarity and brevity are stressed in the RFP proposal binders. Send seven (7) hard copies and one electronic copy to the attention of:
Mr. Douglas C. Wesley, CFA, Deputy Chief Investment Officer
State Universities Retirement System of Illinois
1901 Fox Drive
Champaign, IL 61820
B. Submission of Questions
In order to clarify any issues in this Request for Information, the System will respond only to questions that are presented in writing via e-mail to . All questions concerning this RFP must be received by December 1, 2006. These questions will be consolidated into a single Q&A document. The Q&A document will be posted to the website (www.surs.org) on or around December 7, 2006 without divulging the source of the query.
C. Rights Reserved
SURS reserves the right to amend any segment of the RFP prior to the announcement of a successful contractor. In such an event, all responders will be afforded the opportunity to revise their proposal to accommodate the RFP amendment.
SURS reserves the right without prejudice to reject any or all proposals submitted. There is no express or implied obligation for SURS to reimburse for any expenses incurred in preparing proposals in response to this request. All material submitted in response to the RFP will become property of SURS. Materials received will be considered public information and will be open to public inspection in accordance with the State of Illinois Freedom of Information Act (FOIA).
D. Specific Proposal Contents
It is requested that your response be limited to no more than two binders (does not include the firm’s annual report and the SAS 70 report). One of the binders shall contain only the questions and responses to the questionnaire. Extra material, such as press clippings, promotional material, etc. should be limited. The following contents are required.
1. Transmittal Letter. The transmittal letter must be submitted on the firm’s official business letterhead. The letter is to transmit the proposal and must identify all materials and enclosures being forwarded collectively as a response to this RFP. The transmittal letter must also warrant that the proposer has met all of the minimum qualifications specified in Section VII (Minimum Qualifications) as of June 30, 2006. The transmittal letter must be signed by an individual authorized to commit the firm to the scope of the work proposed at the price quoted in the firm’s cost proposal.
2. Executive Summary. The executive summary should be limited to 5 pages and discuss your firm, its history, capabilities, personnel, etc.
3. Questionnaire. A response must be printed on 8.5” x 11” paper and one-sided. Completeness, clarity and brevity are stressed in the RFP proposal binders. The proposer should address the items in the RFP in the order in which they appear in the RFP. Further, each question number and question in the RFP shall be repeated in its entirety before stating the answer.
Please complete the following sections in accordance with the proposal(s) you are participating in:
1. Custody with securities lending – Answer all questions.
2. Custody with no securities lending – Answer all questions except questions 70 through 92 in section IX (Securities Lending) and questions 110 through 112 in Section XIII (Fees).
3. Stand alone securities lending – Please complete questions in sections:
- I – Organizational Overview
- IX – Securities Lending
- Fees
4. Fee Proposal. This section must identify the annual fee proposed to SURS for the three year period beginning July 1, 2007, and ending June 30, 2010. Any fees not included in the annual retainer must be expressly stated in this section. Fee proposals should be submitted for the following three options: 1) custody with securities lending; 2) custody with no securities lending; 3) stand alone securities lending.
E. Ex-parte Communications
Public Act 93-617, which became effective December 9, 2003, brought about new Illinois ethics procedures. All “ex parte communications” concerning investment, rulemaking or quasi-adjudicatory matters pending before the State agency must be documented and some must be reported. An “ex parte communication” is any written or oral communication by any person that imparts or requests material information or makes a material argument regarding potential action concerning an investment, a rulemaking process, or a quasi-adjudicatory matter. An ex parte communication does not include statements publicly made in a public forum or communications among employees of the State agency.