DRAFT SOW - CID REIT.pdf

SECTION C – STATEMENT OF WORK

Active U.S. Real Estate Investment Trust (REIT) Equity Investment Management Services

1.0. BACKGROUND

The Employee Retirement Income Security Act of 1974 (ERISA) established Pension Benefit Guaranty Corporation (PBGC) as a federal corporation to encourage the growth of defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum. Defined benefit pension plans promise to pay a specified monthly benefit at retirement, commonly based on salary and years on the job.

PBGC, a wholly owned United States Government corporation, administers the insurance program and termination process for most private-sector defined benefit pension plans that are tax-qualified under the Internal Revenue Code. PBGC is headed by a Director who reports to a Board of Directors consisting of the Secretaries of Labor, Commerce, and Treasury, with the Secretary of Labor as Chairman. General tax revenues do not fund PBGC. PBGC collects insurance premiums from employers that sponsor insured pension plans, earns money from investments, and receives the assets of the pension plans it terminates.

PBGC manages all these assets under an investment policy approved by the Board of Directors. PBGC maintains two separate investment funds: the Revolving Fund and the Trust Fund. The Revolving Fund (valued at approximately $65 billion as of September 30, 2024) receives all premium payments and is invested solely in “book-entry” U.S. Government securities held at the U.S. Treasury. The Trust Fund (valued at approximately $67 billion) receives assets from terminated plans and is the source of funds related to this contract.

The PBGC Investment Program is structured as a manager-of-managers program. No assets are managed internally. The PBGC exclusively uses institutional investment management firms to invest its assets, subject to PBGC’s oversight and consistent with the PBGC’s Investment Policy Statement.

2.0. PURPOSE

The purpose of this requirement is to provide active investment in REIT equities that performs on a risk adjusted basis in excess of a chosen benchmark, currently the FTSE Nareit Equity REITs Index. The portfolios will be 100% long only.

3.0. AGENCY MISSION

The Pension Benefit Guaranty Corporation (PBGC) mission is to encourage the growth of defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum. To accomplish this mission the PBGC needs to efficiently manage the assets in its Trust Fund according to the goals and target allocations specified in the Investment Policy Statement (IPS). Active investment in REIT equities can provide superior risk adjusted returns compared to an index portfolio, particularly given the volatile nature of these markets. Working with capable investment managers in this market helps the PBGC maximize the return on its investable assets by outperforming an index portfolio. This helps the PBGC to retain more assets on a post fee basis in order to pay the pension benefits and keep pension insurance premiums to a minimum.

4.0. SCOPE

The investment management organization retained under contract by PBGC is responsible for providing investment management of an REIT equity portfolio that is 100% long only. At PBGC's sole discretion, allocations may range from $250-$500 million and may change at any time during the performance of the contract.

5.0. OBJECTIVE

The primary objective of this requirement is to obtain investment managers to manage the Corporation’s investment assets consistent with guidelines specified by the contract.

The investment manager shall also be responsible for notifying PBGC of significant changes in personnel, ownership, resources, or firm direction within 10 business days of any said change.

6.0. TASKS

6.1. Active Investment in REIT Equities

6.1.1. The firm shall demonstrate a repeatable investment process that can deliver strong risk adjusted returns in excess of the benchmark (the FTSE Nareit Equity REITs Index) on a go forward basis.

The PBGC continuously reviews and evaluates manager performance and conducts extensive due diligence to ensure satisfaction of performance standards are compliant with investment guidelines. All assets shall be managed with full discretion in accordance with the policies of PBGC, and the strategy and objectives mutually agreed upon between the investment manager and PBGC. The firm shall comply with the Department of Treasury’s Office of Foreign Asset Control regulations.

The investment manager is expected to adhere to the investment style for which it was retained, unless mutually agreed upon with PBGC. PBGC shall receive any of the investment manager's internal or external investment, market and economic research training materials and support capabilities and services in the performance of PBGC’s investment responsibilities. This does not include proprietary models or information unique to the investment manager’s investment process.

The investment manager shall maintain close contact with PBGC’s Corporate Investments Department and shall serve as a resource for economic, investment information and research.

The investment manager shall keep PBGC fully informed of the rationale for the investment manager’s investment decisions and changes in the portfolio under its management.

The investment manager shall be registered with the SEC as an investment advisor or have proof of bank exemption and shall have ERISA fiduciary responsibility for the assets under its management. PBGC will delegate its proxy voting authority to the investment manager. The investment manager shall vote in accordance with ERISA rules and regulations and shall maintain records of its votes and report the results, at least annually, to PBGC.

The investment manager shall work closely with PBGC’s custodian bank to facilitate the efficient and timely recording of purchases, sales and other activity, reconcile securities and cash balances and provide information necessary to calculate performance results. The manager shall be responsible for best execution, including foreign exchange.

The investment manager shall also be responsible for notifying PBGC of significant changes in personnel, ownership, resources, or firm direction within 10 business days of any said change.

a. Components of the Active Investment in REIT Equities include:

1) A sound investment philosophy and process for active investment in REIT equities that provides rationale for how the fund can outperform the index over the term of the contract.

2) An investment process that is repeatable and utilizes reliable data sources. The investment process shall include research resources that support the investment philosophy. Liquidity, country, sector and security constraints shall support the investment philosophy while mitigating unnecessary risk.

3) Portfolio risk monitoring that will reduce the risk of underperformance due to unforeseen portfolio risks.

4) Performance and attribution that reflect the stated goals and investment process that are described.

5) Trading systems and resources that can ensure best execution given the proposed strategy and liquidity in the markets. Pre- and post-trade compliance processes shall reduce the risk of guideline breaches and unauthorized trades.

6) Proxy voting and stewardship efforts that adhere to ERISA and ensure best value for plan participants.

7) A robust team dedicated to the product to support the investment process. This includes researchers, portfolio managers, and traders.

At least one member of the investment team shall have 5 years of experience investing in REIT equities with the firm.

8) Middle/back-office and compliance departments to ensure compliance with regulations and reporting requirements.

9) A client service team to assist with delivering reports and data, meeting requests, and to answer high level questions about the process, team, and firm.

10) A parent firm with the ability to support the ongoing investment in REIT equities, including the ability to continue staffing the product and provide resources necessary for successful outperformance.

11) An organization with no conflicts of interest with the successful investment and outperformance of PBGC’s assets as well as PBGC’s mission.

12) An organization with few to no regulatory actions against them and that has the ability to comply with regulatory requirements and internal controls.

13) Commitment to asset management, equity asset management, and active REIT equity management.

14) Stability and growth of client assets to allow for economies of scale that will allow for continued investment in staff, management, vendor oversight and technology that is necessary to successful contract performance.

6.1.2. The firm shall meet with Corporate Investment Department (CID) staff twice a year, which will be coordinated with the Contracting Officer’s Representative (COR).

Meetings can be conducted in-person, virtually, or at the investment manager’s offices. At minimum, one meeting per year will occur in-person at the investment manager’s offices.

6.2. Deliverables

The firm shall provide the following reports and policy document submissions as described in the tables below.

The following abbreviations are used in this schedule:

IAW: In Accordance With NLT: No Later Than

Reports and policy document submissions are due the next Government workday if the due date falls on a holiday or weekend. Reporting items below may be combined into one or more documents for ease of transmitting reports.

REPORT DESCRIPTION METHOD OF DELIVERY

DATE OF

COMPLETION/

DELIVERY

Holdings, Transactions, and Performance reports available to PBGC’s custodian

Via email to COR NLT 8 business days after month’s end.

Portfolio Comparison vs. the Benchmark Index

Via email to COR NLT 10 business days after month’s end.

Holdings Report Via email to COR month’s end.

Investment Philosophy Via email to COR month’s end.

Portfolio-level Characteristics vs.

Benchmark

Via email to COR NLT 10 business days after month’s end.

Performance Attribution vs. Benchmark Via email to COR NLT 10 business days after month’s end.

Economic and Market Commentary Via email to COR NLT 10 business days after month’s end.

Derivates Report – if the fund utilizes derivatives in the portfolio, provide a detailed report.

Via email to COR NLT 10 business days after month’s end.

Contract Compliance Certification Report Via email to COR NLT 30 calendar days after the end of the quarter

Soft Dollar Report – on a cumulative, calendar year-to-date basis.

Via email to COR NLT 30 calendar days after the end of the quarter

Proxy Voting Report Via email to COR Due every March 1st

Underlying Holdings Report to Investment Management Risk System Reports Provider

Provided after contract award NLT 30 calendar days from the start of the month

Transactions Report to TCA Provider(s) Provided after contract award Within 30 calendar days of quarter end

POLICY DOCUMENT DESCRIPTION

METHOD OF

DELIVERY

DATE OF COMPLETION/

DELIVERY

Evidence of fidelity bond, errors and omissions professional liability and cyber coverage

Via email to COR NLT 60 calendar days of renewal

Revised Securities and Exchange Commission Form ADV Parts I and II (if an ADV is filed.)

Via email to COR Within 30 calendar days after revision

Revised Proxy Voting Policies and Procedures Via email to COR NLT 30 calendar days after revision

Revised Ethics Policy Via email to COR NLT 30 calendar days after revision

A copy or summary of the annual disaster recovery test

Via email to COR Within 30 calendar days of completion of the test

A summary of changes to the revised disaster recovery plan (if revised)

Via email to COR Within 60 calendar days of the completion of the annual disaster recovery test

SSAE 18 (SOC 1) for the asset management subsidiary that manages index funds.

Via email to COR Within 30 days of availability

The contractor shall mark all reports and policy documents listed in the above table to indicate authorship by contractor (i.e., non-Government) personnel; provided, however, that no submission shall contain any proprietary markings inconsistent with the Government's rights set forth in this contract. The Government reserves the right to treat non-conforming markings in accordance with subparagraphs (e) and (f) of the FAR clause at 52.227-14.

8.0. TRANSITION

8.1. Transition In

After award of the contract, the firm shall accept cash or assets in kind to fund the account. Direction letters and other funding documentation shall be signed in accordance with PBGC’s Authorized Signer’s List, which will be provided after contract award.

8.2. Transition Out

Before completion of the contract, the firm shall accept a direction letter or other documentation for the sale or transfer of assets Direction letters and other documentation shall be signed in accordance with PBGC’s Authorized Signer’s List, which will be provided after contract award. Cash shall be wired to PBGC’s custodian before termination of the contract.