VENTURA COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION
Request for Proposals for
General Investment Consulting Services and/or
Discretionary Consulting Services
Table of Contents
Section I: Background and Description of Services Required / 3A. Ventura County Employees’ Retirement Association (VCERA) / 3
B. VCERA’s Investment Program / 4
C. Reasons for the Request for Proposal / 6
D. Nature and Scope of Services / 6
E. Frequently Asked Questions (FAQ) / 9
F. Minimum Qualifications for the Proposal / 11
Section II: Process for Submission of Proposal / 12
A. Preparation of the Proposal / 12
B. Submission of the Proposal / 13
C. Timeline for the Search and Selection Process / 13
D. Questions and Communication Regarding the RFP / 14
E. Intent to Respond and Shortened Proposal Option / 14
F. Cancellation of the RFP / 15
G. California Public Records Act / 15
Section III: Information to Be Provided / 17
A: Letter of Transmittal / 17
B: Questionnaire / 18
C: Philosophy and Approach to Consulting / 41
D: Additional Materials & Documents / 43
E: References / 44
F: Fee Proposal / 45
Appendix 1: Mandatory Provisions for Investment Consultant Services Contract
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Section I – Background and Description of Services Required
A. Ventura County Employees’ Retirement Association (VCERA)
VCERA is a cost-sharing multiple-employer defined benefit pension plan covering the employees of the County of Ventura and other participating agencies pursuant to the County Employees Retirement Law of 1937, California Government Code Section 31450, et seq. VCERA operates as an independent governmental entity separate and distinct from the County of Ventura.
VCERA provides lifetime retirement, disability, and death benefits to its members.
VCERA is governed by the Board of Retirement (Board). The Board consists of nine members and two alternates. The County Treasurer is a member of the Board by law. Four members are appointed by the Board of Supervisors, one of whom may be a County Supervisor. Two members are elected by the general membership; one member and one alternate are elected by the safety membership, one member and one alternate are elected by the retired members of the Association. All members of the Board serve terms of three years except for the County Treasurer whose term runs concurrent with his term as County Treasurer.
The Board is responsible for the administration of the plan and the investment of VCERA’s assets. Its specific responsibilities include but are not limited to:
· establishing and implementing an investment policy manual and statement;
· adopting employee and employer contribution rates based on annual actuarial studies; and
· establishing policies for the effective operation of VCERA.
It is also responsible for establishing policies governing the administration of VCERA, and oversees the Retirement Administrator and other staff in the performance of their duties in accordance with the Government Code and the Board’s Rules, Regulations and Policies.
The Board employs a staff of twenty (20) to administer the plan. The Board also retains various advisors and consultants on a contractual basis, including, but not limited to, the following:
· General Investment Consultant
· Independent Actuary
· Independent Auditor
· Board Counsel
· Fiduciary Counsel (as necessary)
· Investment Legal Counsel (as necessary)
VCERA is actuarially funded by employer and employee contributions. The Board retains an independent actuary to perform an annual valuation of the plan. Based on such valuations, the Board determines rates of contributions and recommends such employer and employee rates to the County of Ventura for adoption by the Board of Supervisors.
B. VCERA’s Investment Program
The Board is responsible for the prudent investment of member and employer contributions and defraying reasonable expenses of administration, making benefit determinations, and managing the investment of VCERA’s assets.
Total assets for VCERA, as of December 31, 2012, were approximately $3.5 billion, and the assets of VCERA are, or are in the process of being, invested in the following asset classes:
· U.S. Equity
· International Equity
· Global Equity
· U.S. Fixed Income
· Global Fixed Income
· Real Estate
· Private Equity
· Liquid Infrastructure (MLPs)
· Global Tactical Asset Allocation (GTAA)
· Risk Parity
· Cash (overlay, synthetic rebalancing, and tactical rebalancing)
VCERA’s custodial bank holds system assets which are externally managed by, presently, sixteen (16) registered investment managers. VCERA has a small portion of cash held by the County of Ventura Treasurer and Bank of America.
VCERA has established an asset allocation policy and investment manager structure as shown below, and a portion of it is still being developed for current searches:
Asset Class / Target / Investment Managers /U.S. Equities / 36% / BlackRock Extended Equity Index
Western Index Plus
BlackRock Equity Market Fund
International Equities / 19% / BlackRock ACWI ex-U S. Index
Sprucegrove
Hexavest
Walter Scott
Global Equities / 10% / GMO Global Equity
BlackRock MSCI ACWI Equity Index
Fixed Income / 25% / Western
BlackRock U.S. Debt Fund
Reams
Loomis Sayles
Global Fixed Income / 2% / Loomis Sayles Global
PIMCO Global
Real Estate / 8% / Prudential Real Estate
UBS Real Estate
Guggenheim (To be liquidated 3/31/13)
RREEF America III
Private Equity* / 5% / Adams Street Primary Fund of Funds
Pantheon Secondaries Fund of Funds
To Be Determined (search underway)
Liquid Infrastructure*
MLPs / 3% / Tortoise
Liquid Real Return*
GTAA
Risk Parity / 7% / To Be Determined (search underway)
Cash / 0% / Clifton Group (cash overlay, synthetic
rebalancing, and tactical rebalancing)
* Redistribution of traditional asset class allocations pending final allocations to new and evolving asset classes.
C. Reasons for the Request for Proposal
The current investment consultant firm has served VCERA for approximately 12 years. This RFP is being issued in order to invite proposals from qualified investment consulting firms to help the Board ensure that it will have appropriate consulting resources for the future. The Board will consider engaging an investment consultant to provide either general investment consulting services or discretionary consulting services (also referred to as an outsourced CIO model). Responses to this RFP may contain proposals for general investment consulting services, discretionary consulting services, or both.
The Board reserves the right, at its sole discretion, to enter into either a general investment consulting OR a discretionary consulting relationship at the completion of this search process. The current investment consultant is not precluded from submitting a proposal in response to this RFP.
D. Nature and Scope of Services
General Investment Consulting Services
In general, the firm will report to the Board and assist the Board in the ongoing process of investment policy development and implementation. The firm will serve in a fiduciary capacity and will acknowledge in writing its fiduciary status, without qualification. In all cases, the firm and its representatives will offer advice to the Board that is solely in the interest of the plan participants and beneficiaries of VCERA. The services required include, but are not limited to, the following:
1) Investment Policy and Asset Allocation
(a) Upon engagement, and annually thereafter, conduct a comprehensive review and analysis of investment policies, objectives, asset allocation and portfolio structure, and recommend changes, if appropriate. Review and update VCERA’s investment policy statement.
(b) Work with staff and the actuary and conduct an asset/liability study of the fund at least every three years, including recommending methodologies, assumptions, asset classes for consideration, and alternative asset allocations.
(c) Develop an appropriate investment management structure for VCERA and each asset class that considers the role of active versus passive strategies and investment management styles under different market conditions.
(d) Analyze the investment characteristics of available asset classes and the risk/return potential of alternative asset mix policies.
(e) Develop policies, guidelines and procedures for rebalancing the asset mix.
(f) Advise VCERA about new developments in investment management techniques and portfolio management strategies. Analyze how new techniques might improve the investment program and provide advice as to whether they should be implemented.
(g) Provide advice and recommendations on various other investment policy issues including, but not limited to: currency management, derivatives, rebalancing, use of soft dollars, securities lending, proxy voting, etc.
2) Investment Manager Search, Selection and Review
(a) Provide advice and recommendations on investment manager allocation and structure, manager mandates and performance benchmarks.
(b) Provide ongoing monitoring and oversight of investment managers to ensure compliance with laws and regulations, investment policies and manager mandates. Have periodic discussions with managers on investment performance and organizational issues (such as changes in ownership, staff, new products, etc.). Report to the Board as necessary.
(c) Advise on manager retention/termination, and develop a formal manager review process.
(d) Provide investment manager search and selection services from time to time and make recommendations as necessary.
(e) Assist in negotiating appropriate investment management fees and with monitoring and evaluating manager trading and transaction costs.
(f) Participate in Board due diligence visits.
3) Performance Monitoring and Reporting
(a) Compare the investment performance of the total fund, asset classes and investment managers to relevant benchmarks and “peer group” samples.
(b) Conduct performance attribution analysis to determine the value added by investment policy, asset allocation and security selection.
(c) Prepare and present quarterly performance reports, including attribution analyses, and monthly performance summaries to the Board.
(d) Recommend appropriate performance benchmarks for the total fund, each asset class, portfolio composite and investment manager.
(e) Provide access to performance evaluation and attribution analytics, tools and software.
4) Client Service and Education
(a) Attend 11 regular monthly meetings of the Board and 1 investment retreat, as well as special meetings pertaining to investments that may be necessary from time to time.
(b) Formulate, under the direction of the Board, the agenda of the full-day investment retreat.
(c) Coordinate effectively with staff, the actuary and the custodian bank.
(d) Respond to inquiries between meetings in an appropriate and timely manner.
(e) Report any significant changes in the firm’s ownership, organizational structure and personnel in a timely manner.
(f) Assist on special projects as needed from time to time.
(g) Provide all other investment advisory-related services as requested.
(h) Provide education to Board and staff on investment issues and participate in ad hoc workshops as requested by the Board from time to time.
(i) Make available all firm research, including proprietary research, and provide consultation with research staff.
5) Review, Search and Selection of Other Investment-Related Vendors
(a) Provide advice and recommendations on custodial arrangements, (including conducting custodian review and search services, securities lending, and securities litigation processing).
(b) Assist with evaluation, search and selection involving other investment-related consultants and vendors as required.
Discretionary Consulting Services
As noted in Section C, the Board is also considering a discretionary consulting relationship (also known as an outsourced CIO model). The discretionary investment consultant will be required to perform all the activities set forth in Sections D.1 to D.5 above, as modified for a discretionary consulting relationship. This RFP includes a questionnaire containing a series of questions regarding the potential scope of such a relationship, and the proposing firm’s qualifications, experience, and approach to discretionary consulting. The Fee Proposal of this RFP also contains a separate fee schedule for the provision of discretionary consulting services.
E. Frequently Asked Questions (FAQ)
1. What are the major investment issues or challenges that VCERA is currently confronting?
VCERA is currently struggling with capital market assumptions and an asset allocation that makes it difficult to achieve an earnings assumption of 7.75%. Further, VCERA is managing $3.5 billion in assets without dedicated staff, splitting responsibilities between the Retirement Administrator, Chief Financial Officer, outside money managers, and the full service investment consultant.
2. When was the annual actuarial valuation study last conducted? What is the current funded status of VCERA?
The annual actuarial valuation and review, as of June 30, 2012, shows a current valuation value of assets to actuarial accrued liabilities of 77.69%, and a current market value of assets to actuarial accrued liabilities of 73.39%.
3. Do you anticipate making any major changes in the asset allocation or the investment management structure of the Fund in the near future? Are you considering any new asset classes?
VCERA recently awarded Tortoise an MLP allocation of 3% of assets (or $105 million), and will be considering an additional private equity fund of funds allocation of $150 million on March 18, 2013. On April 15, 2013, VCERA will consider an allocation of 7% of assets (or $245 million) split between Global Tactical Asset Allocation and Risk Parity in either a 70/30, 50/50, or 30/70 ratio. VCERA also plans to complete an RFP for Plan Custodian, but does not foresee available staff resources permitting it until November 2013, or later.
4. What strategic decisions are currently pending before the Board that the new consultant would likely be involved in?
The Board is currently evaluating a governance, risk management, and performance aggregating iPad application “dashboard” in an effort to provide more concise, clear, and timely information in a paperless environment. The Board is also looking at further development of VCERA’s private equity allocation, further review of transitioning bond allocations into unconstrained vehicles, and continued review of asset management fees and asset manager performance.
5. Would the general investment consultant be involved in decisions with respect to real estate and alternative investments? Does the Board use specialty consultants for these asset classes?
VCERA currently employs a general investment consultant with respect to real estate and alternative investments. It does not use specialty consultants. VCERA expects that the general investment consultant or discretionary consultant would continue to provide advice concerning real estate and alternative asset classes.
6. What is the Board’s schedule with respect to monthly meetings that the investment consultant would be expected to attend?
The Board generally meets on the third Monday of the month for investment and business items, unless there is a holiday or other extenuating circumstances. The Board generally determines its calendar at its November Business meeting. The calendar for 2013 business meetings is as follows: