ESBD_File_255490_CC_2200001_Master Custodian and Securities Lending Services.pdf

Teacher Retirement System of Texas

Request for Proposal (RFP) Master Custodian and Securities Lending Services

Solicitation No.: CC-2200001 NIGP Class/Item Codes: 946-11, 946-29, 946-25, 946-56, 946-75

Anticipated Schedule of Events

September 13, 2021

Issuance of RFP

September 23, 2021, 4:00 p.m., Central time Non-mandatory pre-proposal Conference.

Pre-proposal conference will be held by Microsoft Teams Meeting. Conference call information provided in Item 14 below.

September 30, 2021, 3:00 p.m., Central time Deadline for submission of questions

October 22, 2021, 3:00 p.m., Central time Deadline for submission of proposals Late Proposals will not be considered

Presentations/Interviews – TBD Presentations or Interviews by top-ranked Respondents that score within the competitive range, if requested. TRS may elect to conduct presentations or interviews as part of the evaluation process.

April 20 – 21, 2022 Anticipated date of board meeting; This solicitation is board approved. Top-ranked Respondents may be requested to present to the TRS Board of Trustees during this board meeting.

Solicitation Name: Master Custodian and Securities Lending Services

Table of Contents I. Summary

II. Definitions and Acronyms

III. Scope of Work

A. Introduction

B. Asset Types

C. Portfolio Management

D. Trade Volume

E. Global Trade Coverage

F. Description of Work

G. Transition Services and Implementation

H. Maintenance and Support

I. Acceptance Criteria for Deliverables

J. Reporting

K. Accommodations and Equipment

L. Invoicing Requirements

M. Communication Plan

N. Contractor Staffing

O. Performance Tracking

P. Escalation Plan and Good Faith Negotiations

IV. Evaluation Criteria

A. Minimum Qualifications

B. Custody Bank Qualifications and References – Selection Criteria: 15 points

C. Governance Model, Key Personnel and Experience – Selection Criteria: 35 points

D. Service Delivery – Selection Criteria: 35 points

E. Cost – Selection Criteria: 15 points

F. Presentations or Demonstrations – Selection Criteria: 20 points

G. TRS Board of Trustees (Board) Selection

V. Price Form

VI. HUB Subcontracting Plan Information

VII. Insurance Section

A. COVERAGES REQUIRED

B. POLICIES

C. RENEWAL CERTIFICATES

D. NOTICES OF CHANGE

E. INSURANCE CERTIFICATE

F. REQUIRED ADDITIONAL PROVISIONS

Solicitation Name: Master Custodian and Securities Lending Services

VIII. NOTICES, REPRESENTATIVES, AND RECORDS LOCATION

IX. Proposal Submission Format Requirements

A. Proposal Format

B. Submission Instructions

X. Proposal Content

XI. Respondent’s Signature and Information

XII. Acknowledgement of Additional Documents

XIII. Exception Language

XIV. Contract Document List

XV. Exhibit

Section I: Trading, Securities and Derivatives Services

Section II: Transition & Asset Transfers Services

Section III: Account Management Services

Section IV: Cash and Collateral Management Services

Section V: Corporate Action Services

Section VI: Accounting Services

Section VII: Pricing and Valuation Services

Section VIII: Limited Partner Services

Section IX: Performance Measurement Services

Section X: Investment Compliance

Section XI: Information Technology

Section XII: Securities Lending Services

Section XIII: Investment Risk Management Services

Section XIV: Ancillary Services

Section XV – Conversion and Implementation

I. Summary

1. Purpose/Overview TRS is looking to support its investment operations operating model through a contracting partner who can provide cost-effective custodian services and a service model to support TRS.

2. Type of Solicitation Request for Proposal (RFP)

3. Issuing Office

Procurement & Contracts 1000 Red River Street Austin, TX 78701-2698 ATTN: Aundre Petty

4. Purchasing Authority Competitive Procurement per Texas Government Code Section 825.103

5. Mandatory Requirements / Minimum Qualifications

Proposals that do not meet the following mandatory requirements/minimum qualifications will be rejected as non-responsive and disqualified:

Mandatory Requirements:

1) See page 39 of 60 – Section XI. Respondent’s

Signature and Information.

Minimum Qualifications

1) See page 22 of 60 – Section IV. Evaluation

Criteria (A) Minimum Qualifications.

6. Responses to Solicitation Competitive Proposals

7. Deadline for Proposals Teacher Retirement System of Texas (TRS) no later than: October 22, 2021, 3:00 p.m., Central time

8. Initial Contract Term Five (5) year term

9. TRS Optional Renewal Terms Two (2) 1-year renewal options

10. TRS Procurement and Contracts Representative for this Solicitation

Aundre Petty Aundre.Petty@trs.texas.gov

11. TRS Historically Underutilized Business (HUB) Coordinator

LaTresa Stroud

(512) 542-6307 LaTresa.Stroud@trs.texas.gov

12. Proposals Submitted by Email Accepted

13. Proposals Submitted by Fax Not Accepted

Solicitation Name: Master Custodian and Securities Lending Services Solicitation No.: CC-2200001 mailto:Eric.Buenrostro@trs.texas.gov mailto:LaTresa.Stroud@trs.texas.gov

14. Pre-Proposal Conference September 23, 2021, 4:00 p.m., Central Time via Microsoft Teams Meeting. To receive a Microsoft Teams Meeting invite, Respondent must email the TRS Procurement and Contracts Representative for this Solicitation, specified in Item 10, no later than 4:00 p.m., Central Time, September 21, 2021.

15. Solicitation Addenda Notices of changes to items directly impacting the original Solicitation or Proposal process will be posted on the Electronic State Business Daily (ESBD) located at www.txsmartbuy.com/sp. TRS will post any amendment to this solicitation on the ESBD as a Solicitation Addendum. It is the responsibility of an interested party to periodically check the ESBD for updates to the Solicitation prior to submitting a Proposal. Each Respondent is solely responsible for verifying TRS’ receipt of its questions, if applicable, and Proposal by the deadlines specified in this Solicitation.

16. Questions and Answers Questions regarding this Solicitation must be in writing and must be submitted to the TRS Contact Person specified in Item 10 no later than September 30, 2021, 3:00 p.m., Central time. Telephone inquiries will not be accepted. Questions must be submitted by email to the email address specified in Item 10.

17. Respondent Presentations or Interviews

TRS may request that top-scoring Respondent(s) present an overview of the Services proposed in their Proposal. The presentations or interview may be performed virtually via Microsoft Teams Meeting or performed at TRS’ offices located at 816 Congress Street, Austin, Texas. Presentations/Interviews – TBD. The number of top-scoring Respondent(s) will be determined by TRS in its sole discretion.

18. Contact with TRS Staff Upon issuance of this Solicitation, employees and representatives of TRS, other than the TRS Contact Person identified in Item 10, will not discuss the contents of this Solicitation with any Respondent, potential Respondent, or its representatives.

Failure of a Respondent or any of its representatives to observe this restriction may result in disqualification of any related Proposal.

This restriction does not preclude discussions between affected parties for the purpose of conducting business unrelated to this procurement.

Solicitation Name: Master Custodian and Securities Lending Services

II. Definitions and Acronyms

As used in this Solicitation, the following capitalized terms shall have the meaning specified below.

Term Definition Agency Teacher Retirement System of Texas Agency Primary Contact The person designated by TRS to be the point of contact between TRS and Contractor for purposes of monitoring Contractor performance and providing day-to-day interaction and instruction. Also referred to as “Contract Manager” and/or “Project Manager.”

Contract The definitive written agreement, if any, executed by the authorized representative of each of the parties at the end of the procurement process that formalizes the terms, provisions, covenants, and obligations, including but not limited to those contained in this Solicitation, of the respective parties to the arrangement for provision of Services.

Contractor The individual or entity deemed by TRS to be qualified to provide the goods, services, or both sought by TRS pursuant to this solicitation and who is ultimately selected to carry out the requirements stipulated in this solicitation and the resulting Contract. Has the same meaning as “Vendor.”

Contract Manager The person designated by TRS to be the point of contact between TRS and Contractor for purposes of monitoring Contractor performance and providing day-to-day interaction and instruction during the term of the Contract. Also referred to “Agency Primary Contact” and/or “Project Manager.”

Contract Execution The date the Contract is fully executed by all Parties.

Days Calendar days, unless otherwise specified.

Deliverable Unit or increment of work required by the Contract, including such items as goods, services, phase completion, reports, or documents.

Electronic State Business Daily (ESBD)

The public-facing website in which applicable government entities post certain competitive procurement solicitations.

www.txsmartbuy.com/sp.

Employee; Respondent Employee

Any individual who, on behalf of Respondent, will or may participate in providing Services under the Contract resulting from this Solicitation.

The term includes all officers, personnel, replacement personnel, agents, contractors, subcontractors, subcontractor employees, and other representatives of Respondent, regardless of how employed or Contracted by Respondent.

Financial Interest Receiving, or having a right to receive, directly or indirectly, money or other valuable property or benefits under or in connection with the actual or proposed Contract; holding a position in a business such as a principal, officer, director, trustee, partner, employee, or the like, or holding a position of management; holding any of the outstanding debt of a person directly involved in the proposed or resulting Contract; or owning stock or other interest in the business.

Fiscal Year (FY) The State of Texas and TRS’ fiscal year that begins September 1 and ends August 31.

Solicitation Name: Master Custodian and Securities Lending Services

Term Definition Key Personnel Individuals who contribute to the development or execution of a project in a substantive, measurable way and whose absence from the project would be expected to impact the performance of the Contract.

Mandatory Required, compulsory, or obligatory.

Offer, Proposal, or Response The documents, including any exhibits or attachments, submitted by a

Respondent in response to a solicitation. “Offer” has the same meaning as “Proposal” or “Response” when such terms are applicable in the solicitation document so titled as Request for Proposal (RFP), Request for Offers (RFO), or an Invitation for Bid (IFB).

Party Entity who enters into an agreement with one or more other Contracting parties intending to be legally bound to perform the obligations for the agreed consideration.

Project Manager The person designated by Contractor to be the point of contact between Contractor and TRS for purposes of scheduling, billing, Contract management, and day-to-day management of services under this Solicitation and the resulting Contract. Also has the same meaning as “Vendor Primary Contact.”

Relative A current or former TRS employee’s spouse, father, mother, brother, sister, son or stepson, daughter or stepdaughter, mother-in-law, father-in-law, sister-in-law, brother-in-law, son-in-law, or daughter-in-law.

Respondent The individual or entity that responds to this solicitation with a proposal to provide the goods, services, or both sought by TRS pursuant to this solicitation in accordance with the requirements stipulated in this solicitation and the resulting Contract.

Services All requirements, duties, schedules, locations, and other items described in the Solicitation. The term includes all services associated with Respondent’s performance under the Contract resulting from this Solicitation.

Service Level Agreement The supplemental document that details the manner and means in which the Custodian and securities lending agent provides the Services and deliverables required by the Contract. The Service Level Agreement will be developed jointly by TRS and the Custodian after the Contract Award.

TRS Teacher Retirement System of Texas, the public entity responsible for the issuance of this Solicitation.

Vendor The individual or entity deemed by TRS to be qualified to provide the goods, services, or both sought by TRS pursuant to this solicitation and who is ultimately selected to carry out the requirements stipulated in this solicitation and the resulting Contract. Also has the same meaning as “Contractor.”

Vendor Primary Contact The person designated by Vendor to be the point of contact between Vendor and TRS for purposes of scheduling, billing, Contract management, and day-to-day management of Services under this Solicitation. Also has the same meaning as “Contractor Primary Contact.”

Work The services, goods, and property Contractor is required to provide under the Contract resulting from this Solicitation. The term includes the entire completed undertaking and various separately identifiable parts.

The term also includes all duties of Contractor.

III. Scope of Work A. Introduction

Teacher Retirement System of Texas (TRS), a public pension fund and entity of the State of Texas, issues this Request for Proposal No. CC-2200001 to solicit for a qualified Contractor to provide Master Custodian and Securities Lending Services.

TRS is a service-oriented public pension system providing retirement, healthcare, and related benefit programs for Texas public education employees, retirees, and their beneficiaries (“Participants”). TRS’ mission is to improve the retirement security of plan Participants by prudently investing and managing trust assets and delivering benefits that make a positive difference in members' lives.

B. Asset Types The below table represents TRS’ Total Fund Asset Mix with current and target weights based on the Investment Policy Statement (IPS), as of May 31, 2021.

NAV ($ Millions)

As of 5/31/2021

Global Equity

USA 18% 17.36% $33,085.15

Non-US Developed 13% 13.91% $26,509.68 Emerging Markets 9% 9.03% $17,204.19 Private Equity 14% 16.38% $31,214.54 Total Global Equity 54% 56.68% $108,013.57 Stable Value Government Bonds 16% 13.93% $26,546.89 Absolute Return 0% 2.97% $5,651.56 Stable Value Hedge Funds 5% 4.98% $9,489.59 Total Stable Value 21% 21.88% $41,688.04 Real Return Real Estate 15% 12.71% $24,217.94 Energy, Natural Resources & Infrastructure 6% 4.85% $9,233.09 Commodities 0% 0.32% $609.12 Total Real Return 21% 17.88% $34,060.15 Risk Parity 8% 7.97% $13,967.90

INVESTMENT EXPOSURE 104% 105.07% $15,185.84

Asset Allocation Leverage Cash 2% 1.40% $2,660.15 Asset Allocation Leverage -6% -5.81% ($11,066.44) Net Asset Allocation Leverage -4% -4.41% ($8,406.29)

TOTAL FUND 100% 100% $190,541.32

Asset Class Target Weight

Current Weight

Solicitation Name: Master Custodian and Securities Lending Services

C. Portfolio Management The below table represents TRS’ Total Fund Asset Mix by TRS Portfolio based on the IPS, as of May 31, 2021.

D. Trade Volume

The below table represents TRS’ Internal Trade Volume for the period June 1, 2020 through May 31, 2021.

Asset Type Notional Traded ($ Millions)

As of 5/31/2021

Transaction Volume 6/1/2020 to 5/31/2021

Equities 64,622 155,497 Foreign Exchange (FX) 59,262 9,479 Futures 181,334 2,511 Options 239,470 4,538 Swaps 286 206 Total Internal Trades 173,681 614,791 Total Cash Movements 5,326 54,755 Total Internal Trade Volume 179,007 669,546

E. Global Trade Coverage

The below table represents the 56 markets that TRS currently trades in.

EAFE Markets (24) EM Markets (32) Australia Abu Dhabi Austria Argentina Belgium Canada Brazil Clear Stream Chili Denmark China – HKSC Euroclear China – Shanghai Finland China – Shenzhen France Columbia Germany Czech

Asset Class Assets

($ Millions) Total % Internal

Fundamental Internal

Quantitative

External Public

Markets APM Group Strategies

Passive & Transition ARP Overlay Public SPN Internal Rates AA Leverage

Trust Rebalance and Cash Risk Parity Opportunistic Private Equity Real Estate ENRI

GLOBAL EQUITY

Total Public Equity $76,799.0 40.31% $14,599.7 $18,169.2 $30,745.9 $420.2 $6,521.4 $63.4 $6,505.3 --- -$226.0 --- --- --- --- --- Total Private Equity $31,214.5 16.38% --- --- --- --- --- --- --- --- --- --- --- $31,214.5 --- --- TOTAL GLOBAL EQUITY $108,013.6 56.69% $14,599.7 $18,169.2 $30,745.9 $420.2 $6,521.4 $63.4 $6,505.3 --- -$226.0 --- --- $31,214.5 --- ---

STABLE VALUE

Government Bonds $26,546.9 13.93% --- --- --- --- --- $149.2 $2,144.6 $24,253.0 $0.0 $0.0 --- --- --- --- --- Total Stable Value Hedge Funds $9,489.6 4.98% --- --- $9,489.6 --- --- --- --- --- --- --- --- --- --- --- Total Absolute Return $5,651.6 2.97% --- --- --- --- --- $0.0 $1,012.9 --- --- --- $4,638.7 --- --- --- TOTAL STABLE VALUE $41,688.0 21.88% --- $9,489.6 --- --- $149.2 $3,157.5 $24,253.0 $0.0 $0.0 --- $4,638.7 --- --- ---

REAL RETURN

Total Real Estate $24,217.9 12.71% --- --- --- --- --- --- --- --- --- --- --- --- $24,217.9 --- Total Energy, Natural Resources & Infrastructure

$9,233.1 4.85% --- --- --- --- --- --- --- --- --- --- --- --- --- $9,233.1

Total Commodities $609.1 0.32% --- --- --- --- --- $374.8 $53.3 --- --- --- $181.0 --- --- --- TOTAL REAL RETURN $34,060.1 17.88% --- --- --- --- --- $374.8 $53.3 $0.0 --- --- $181.0 --- $24,217.9 $9,233.1

RISK PARITY

TOTAL RISK PARITY $15,185.8 7.97% --- --- --- --- --- --- --- --- --- $15,185.8 --- --- --- --- INVESTMENT EXPOSURE $198,947.6 104.41% $14,599.7 $18,169.2 $40,235.5 $420.2 $6,521.4 $587.5 $9,716.2 $24,253.0 $0.0 -$226.0 $15,185.8 $4,819.6 $31,214.5 $24,217.9 $9,233.1

ASSET ALLOCATION LEVERAGE

Asset Allocation Leverage -$11,066.4 -5.81% $12.3 $14.3 $95.5 -$90.4 -$0.3 -$579.2 -$2,402.5 -$9,317.2 $0.0 $1,205.6 --- --- --- -$4.6 --- Cash $2,660.2 1.40% --- --- --- --- --- --- $739.5 --- $1,920.7 --- --- --- --- --- NET ASSET ALLOCATION -$8,406.3 -4.41% $12.3 $14.3 $95.5 -$90.4 -$0.3 -$579.2 -$1,663.0 -$9,317.2 $0.0 $3,126.3 --- --- --- -$4.6 --- TOTAL $190,541.32 100.00% $14,612.0 $18,183.5 $40,331.0 $329.8 $6,521.1 $8.2 $8,053.2 $14,935.8 $0.0 $2,900.2 $15,185.8 $4,819.6 $31,214.5 $24,213.3 $9,233.1

Total Fund By Profit Center

Active Public Markets

Solicitation Name: Master Custodian and Securities Lending Services

Hong Kong Dubai DFM Ireland Dubai NADAQ Italy Egypt Japan Greece Netherlands Hong Kong New Zealand Hungary Norway India Portugal Indonesia Singapore Korea Spain Kuwait Sweden Malaysia Switzerland Mexico United Kingdom Morocco United States Pakistan Israel Philippines

Poland Argentina Russia Saudi Arabia South Africa Taiwan Thailand Turkey

F. Description of Work

TRS seeks the following services in order to successfully execute all transactions from investment decision to book of record.

I. Trading, Securities and Derivatives Support Trading, securities and derivatives support provide safekeeping of TRS assets as well as reconciliation, reporting, and issue resolution for all TRS trades. As part of rendering trading, securities, and derivatives support services, Custodian shall:

• Provide 24 hour per day, 7 day per week staffing to support TRS’s trade and settlement life cycle including coverage/handoffs over the 24-hour period

• Perform trade validation and systematic confirmation/affirmation of trades to the broker/counterparty confirmation

• Provide trading and settlement integration with the Bloomberg Order Management

System by transaction type

• Provide claims support, processes to capture in-bound claims, tracking, claim investigation and issue claims

• Provide weekly and monthly trade operations metrics for internal and external accounts

• Maintain controls to ensure transactions are recorded accurately and timely for the following (but not limited to) asset classes:

o Domestic equities o International equities o Foreign Exchange (FX)

Solicitation Name: Master Custodian and Securities Lending Services o Fixed income securities o Repurchase agreements (Repos) o Futures (Exchange-traded and OTC) o Options (Exchange-traded and OTC) o Total return swaps (OTC) o Synthetic single-name equities (OTC) o Credit default swaps (Cleared and OTC) o Interest rate swaps (Cleared and OTC) o Private equity partnerships o Real asset partnerships o Hedge funds partnerships

• Make available customizable trade settlement and custody data and reporting including (but not limited to):

o Instruction discrepancies o Unmatched settlement instructions o All pending trades and updates o Advise of any settlement differences outside predetermined tolerance o Advise insufficient shares in account o Failed trade detail such as broker settlement rate and by broker o Number of days that a trade failed

• Reconcile custody to accounting systems with escalation process within the firm and back to client

• Maintain processes to identify and manage buy-ins, including partial trades that are under buy-in threat and buy-ins executed in the market, and advise client of by-in details and any late settlement penalties

• Maintain processes to notify client if they have reached or exceeded an ownership limit in foreign market

• Maintain systems and processes for securities, exchange-traded and OTC futures, forwards, swaps and options transactions from trade entry into accounting systems

• Provide regulatory guidance as it relates to trading securities or derivatives

• Maintain systems and processes that integrate with prime brokers and futures commission merchants (FCMs)

II. Transitions and Asset Transfers TRS executes all asset transitions and transfers internally in conjunction with its custody bank.

As part of rendering transition and asset transfer services, Custodian shall:

• Provide representatives from accounting, client services and trade support to coordinate relevant communications and tasks Provide a record of transactions in custody, accounting and performance systems on trade and settlement date

• Review, monitor and price transactions as of trade date

• Provide reports on related activities such as securities lending, corporate actions and other events that might impact settlement of securities involved in a transition or asset transfer

• Confirm settlement of securities via a “Certified List”

III. Account Management Services

The account management function is the process in which TRS’ accounts are created and maintained in accordance with TRS policies and global market, tax and regulatory requirements. As part of rendering account management services, Custodian shall:

Solicitation Name: Master Custodian and Securities Lending Services

• Process new accounts (Funds and CUSIPs), account terminations, account transitions, new markets or sub-custodians, existing market maintenance, aggregates/composites, and breakouts

• Open and modify new accounts/markets and confirm that changes are complete

• Onboard, maintain, and offboard external managers, prime brokers, International Swaps and Derivatives Association (ISDA) counterparties, futures commission merchants (FCMs), and other counterparties in coordination with IMD staff

• Provide daily holdings information to TRS proxy services advisor (currently ISS) as directed by TRS

• Manage market specific powers of attorney as well as reporting for active and expired markets

• Coordinate tax requirements with the sub-custodians, TRS Legal and Compliance and external tax advisors

• Manage and make available all required market, regulatory and client policy compliance documentation for positions, including any provision for segregated accounts in all markets the firm serves

• Work with an independent global tax consultant engaged by the client

• Provide alerts of foreign market tax, regulatory and financial reporting changes

• Report on pending tax receivables tied to both custody and accounting

• Monitor tax exemption monitoring and support including exemption applications and relief at source

• Notify relevant changes to tax information, new or changed documentation requirements, tax rates or market rule changes and statute of limitations

IV. Cash and Collateral Management Cash and collateral management include processing, settlement, forecast, reconciliation, reporting, and issue resolution for cash, cash equivalents, margin, and collateral. As part of rendering cash and collateral management services, Custodian shall provide:

• Start-of-day cash, collateral, margin and treasuries including outstanding trades, encumbrances, valuation, errors or adjustments

• Start of day and end of day collateral management usage reporting tied to trade details

• Short-term investment vehicles for cash and counterparty collateral with methods to preserve principal value, nightly sweep process and cash reconciliations, and fund performance tracking

• Cash movement system that includes controls and authorizations for cash, liquidity and collateral movement

• Margin and collateral management systems for exchange-traded and OTC derivatives with robust management of collateral agreement terms and reporting of timely and accurate transactions against cut-off times

• Currency forwards systems and processes that ensure trades are accurately booked as of trade date, processing cut-off times

• Currency trading that integrates with Bloomberg Order Management System

• Cash, currency and collateral reconciliation process that ensures transaction activity is recorded accurately and timely on trade date

• Investment options for non-USD denominated cash balances

• Daily cash positions in both local and base currency including customization for transactions not conducted through the firm’s system

V. Corporate Action Services Supports processing, settlement, reconciliation, reporting and issue resolution for corporate actions. As part of rendering corporate action services, Custodian shall provide:

• 24 hours per day, 7 days per week staffing to support TRS’ corporate action processing

(voluntary, mandatory and election management including short positions) including coverage/handoffs over the 24-hour period

• Weekly, monthly metrics for mandatory and voluntary actions

• Full audit trail of all corporate actions

• Portal or dashboard where voluntary corporate action elections are input

VI. Accounting Services

Custodian shall provide TRS with an Accounting Book of Record (“ABOR”) which utilizes trade date, full accrual, multicurrency accounting and reporting system that is compliant with U.S Generally Accepted Accounting Principles (GAAP) and pronouncements issued by the Governmental Accounting Standards Board (GASB). As part of rendering accounting services, Custodian shall provide:

• Flexible chart of accounts with ability to provide a trial balance by individual fund investment, portfolio level, Investment Policy Statement levels, security type level, manager level, and investment type.

• For revenue and expense, chart of account field needed by portfolio level to recognize revenues and expense along with a method to allocate if the expense or revenue item should be allocated to multiple areas

• Additional flexible chart of account fields to enable tracking by investment types (domestic equities, fixed income, etc.)

• Mapping chart of accounts to TRS general ledger (GL) chart of accounts on daily or monthly summary basis

• Daily reconciliation of trading activity to ABOR

• Daily reconciliation of corporate actions outstanding to ABOR

• Daily reconciliation of ABOR to downstream performance and compliance systems

• Daily reconciliation of LP statements that are received

• Ability for TRS to generate subsidiary ledger reports to reconcile with general ledgers

• Daily accrual of interest income

• Monthly accrual of management fees

• Ability for TRS to initiate payments tracking the expense or revenue by vendor/payee and

GL account(s)

• Ability to track commissions paid on trades by broker and by portfolio.

• Ability to track and generate 1099 for vendor payments for legal expenses, research expenses, or any other vendor type payment

VII. Pricing and Valuation Services Custodian shall provide TRS with pricing and valuation information services for publicly traded securities and derivative investments utilizing various pricing vendors including pricing validation across multiple vendors, whenever available. Pricing and valuation services should track and monitor stale prices and provide reporting on unpriced and stale security valuations.

As part of rendering pricing and valuation services, Custodian shall provide:

• Daily mark to market pricing for publicly traded assets and derivatives in accordance with pricing policy

• Daily mark to market pricing for publicly traded assets and derivatives held by external managers in accordance with pricing policy

Solicitation Name: Master Custodian and Securities Lending Services

• Month end pricing file used for close and analysis

• Stale priced assets

VIII. Limited Partnership Services

Custodian shall provide TRS with limited partnership statement processing and the related subsidiary ledger used by the ABOR for investments in limited partnership vehicles. As part of rendering limited partnership services, Custodian shall provide:

• Processing of transactions by investment vehicle such as contributions, distributions, commitment amounts (including changes)

• Statement processing should be coordinated with TRS and general partners to manage, receive, track, and process statements or estimates by investment vehicle on a timely basis

• Reconciliation of statements to net asset value (NAV) in the subledger or ABOR and uncommitted balance

• Maintenance of cash adjusted NAV for any cash movements (contributions/distributions)

• Reconciliation of NAV between subledger system and ABOR daily

• Support both time-weighted rate of return (TWR) and internal rate of return (IRR) calculations for performance

• Collection of fee data using manager statements or templates issued by the Institutional

Limited Partners Association (ILPA) (management fee, performance fee) on an accrued as well as paid basis

• Ensure any templates such as ILPA reconcile to NAV in the subledger

• Maintenance of documents provided by investment vehicle (cash flow notices, capital statements, financial statements, advisory board materials, limited partnership agreements)

• Maintenance of investment vehicles by type (LP, Co-Investment, Fund of Funds), and by TRS area or classification (PE, RE, Hedge Fund, Long Only, Spec Ops, ENRI)

• Maintenance of data to provide monthly or year to date rollforward reporting

IX. Performance Measurement Services Custodian shall provide TRS with a Performance Book of Record (“PBOR”) to include accurate, timely, and consistent daily performance return results and performance reporting on a monthly basis. As part of rendering performance measurement services, Custodian shall:

• Calculate periodic returns gross of fees, net of all external manager fees, net of internal operating expenses, net of all fees and expenses, and security level (only) returns

• Calculate returns based upon multiple simultaneous calculation methods (daily linked IRRs, long period IRRs, quarter-over-quarter weighted cash flow TWR, or the Modified Dietz method)

• Integrate PBOR with ABOR including account and security reference information

• Make available history on new benchmarks, builds custom benchmarks, including lagged-return benchmarks for alternative investments

• Provide capabilities to calculate returns on ad-hoc portfolios and composites, with a daily or monthly asset weighted benchmark using custom dates and drill down capabilities to the security level

• Calculate “composite” or “aggregate” benchmarks and allows for different benchmark rebalancing periods and ad hoc changes in benchmark weights over time

• Calculate returns with and without the assumption that the strategy manages its own cash or is responsible for the effects of trade/settlement payables & receivables (what TRS calls the “Invested Level versus Total Level”, or “Invested-to-Total" for short)

Solicitation Name: Master Custodian and Securities Lending Services

• Calculate returns with and without the assumption that derivatives or offset used within the strategy are meant to be fully notionalized exposures including the treatment of financing charges

• Calculate portfolio returns for strategies which utilize an overlay program with and without that overlay program, and present the difference between those two returns as a contribution by the overlay to the total return (what TRS commonly refers to as a “with and without” return contribution presentation)

• Import 20 years of daily TRS performance data, seamlessly combine it with internally calculated “go forward” performance to produce the full suite of historical analysis

• Provide performance attribution approaches that can attribute between “asset allocation” and “stock selection” effects, at a minimum

• Provide reporting of performance measurement and attribution available at various levels (i.e. portfolio, aggregate of portfolios, sector, industry, security, country, currency etc.)

with drill-through capabilities

• Provide a performance calculation system capable of re-allocating assets outside of a known portfolio structure based on generally accepted asset class rules or client-specified rules. As a specific example:

o The ability to autonomously recognize the class mismatch of a designated US small cap portfolio holding a US Treasury and re-allocating that US Treasury as a fixed income exposure instead

• Perform daily process to reconcile between custodian system, accounting system, pre/post risk calculation/modeling system, and the performance calculation system

• Adjust to changes in a client’s investment policy statement

• Provide performance-only reporting system for test portfolios (i.e. unfunded, or “paper” portfolios)

X. Investment Compliance Services The investment compliance function provides independent monitoring, escalation, and remediation support regarding TRS’ Investment Policy Statement (IPS) and other investment-related policies, state and federally mandated investment rules, and other applicable rules and regulations, as determined by the Custodian’s compliance team in conjunction with TRS. As part of rendering investment compliance services, Custodian shall provide:

• Accurate holdings data for pre-trade monitoring in Bloomberg Order Management System

• Post trade monitoring of transactions and holdings

• Daily testing on federally mandated investment rules and other as applicable (SEC, Reg-M etc.)

• Daily testing of thresholds and limitations set by internally managed portfolio based on transactions

• Daily testing of thresholds and limitations on external managers transactions and/or holdings

• Monthly testing of thresholds and limitations on external managers transactions and/or holdings

• Ability for custom compliance tests (i.e. restricted securities list) on holdings

• Ability to define alerts as warnings/soft or alerts/hard

• Ability to define alerts as relating to active and passive violations, as defined in policy

• Ability for derivative compliance testing

• Ability to monitor for shareholder disclosures reporting

• Ability to calculate leverage by total trust and fund/account level

• Alternative reporting for requirements that cannot be automated

Solicitation Name: Master Custodian and Securities Lending Services

XI. Information Technology

TRS must have timely access to all data associated with the trust’s assets at all stages of the investment process from decision to book to performance measurement and reporting.

Custodian must be able to:

• Provide direct access to TRS’ data using industry standard protocols

• Allow self-service user provisioning to all custodian systems and data for any TRS employee, external manager, or other 3rd party, approved by a TRS representative who is preauthorized by the custodian

• Support all standard trade protocols used by industry standard investment management systems

• Support integration with reputable market and benchmark data vendors, allowing data elements to be sourced, validated, and consumed by TRS

• Onboard, store, maintain, and secure 20 years of historical and current investment transactions and portfolio holdings data

• Provide TRS with the ability to manage distribution lists for custodian provided reports and data feeds

• Provide a documented process for deploying existing, new or upgraded custodian systems and data feeds to TRS, including user training and ongoing administration

• Provide TRS with a systems and data facilitator that will be responsible for ensuring that all systems, data, and reports are available and/or delivered within agreed upon timeframes

• Maintain complete documentation on all committed data feeds and reports including global support contacts that is reviewed with TRS quarterly

• Provide TRS with a calendar of system maintenance windows and a process for communication of unplanned downtime for maintenance

XII. Securities Lending Services

An agency securities lending program that includes:

• Countries in which the firm provides lending services, credit analysis, marking-to-market, indemnification policies, collateral policies, and the allocation system.

• Monitoring and reporting process for managing the multiple uses of a security by multiple firm and client groups (i.e., securities lending, collateral management and client repurchase agreement trading)

• Policy for when a sale fail occurs because a security was out on loan

• Ability to credit securities lending incomes and costs (fees, rebates, etc.) to clients and account for in the client’s general ledger

• Method to allocate loans to the participating lenders

• Review of firm’s borrowers credit worthiness

• Separately managed cash collateral and non-cash collateral investment account complying with TRS’s lending policy guidelines

• As required by Texas law, a contractual obligation to fully indemnify TRS against loss resulting from borrower default or the failure of the lending agent to properly execute its responsibilities under the lending agreement1

• Borrower credit quality monitoring

• Cash collateral credit quality monitoring

• Agreement to indemnify TRS from any unrelated business income tax assessed against

TRS due to the lending agent’s failure to comply with the requirements of Section 512

1 Tex. Gov’t Code §825.302(b).

Solicitation Name: Master Custodian and Securities Lending Services

• Compliance rule system and monitoring

• Ability for TRS to impose restrictions on securities lending which are stricter than those of the lending agent, custodian or sub-custodian. Restrictions may include but are not limited to the following:

o loan limits for specific borrowers, total loan limit, refusal to lend to a specific borrower and maximum term for loans. Comment on the firm’s ability and willingness to comply. Are the firm’s securities lending traders separated from the operational aspect of securities lending such as:

delivery of loan securities;

receipt of collateral;

maintenance of broker and/or client credit limits on the system mark to market process;

billing of brokers and cash transfers;

oversight of daily cash collateral investment decisions;

transfer of cash to collateral investment accounts; and, measurement of duration or other risk associated with the management of cash portfolios performance measurement and chart reporting.

XIII. Investment Risk Management Services TRS requires an accurate, timely, and consistent investment risk monitoring and reporting service delivered on a periodic (e.g. daily, monthly, quarterly) basis. The investment risk management service includes:

• Systems that monitor all asset types and unhandled positions

• Reconciliations, data cleansing, accurate and timely loading

• Mapping by asset type and portfolio

• investment risk analytics and benchmark capabilities

• Portfolio views by aggregate, manager, asset class, issuer and client specific rules

• Ex-ante/ex-post risk analysis

• System support of model and blended benchmarks

• Scenario and what-if analysis on various portfolios individually, and collectively

• Fixed income portfolio modeling and design

• Investment risk services process

• Value at Risk (VaR) calculations

• Investment look–through capabilities

XIV. Other Services

Class Action Services

• Track and manage class action litigation and settlement proposals for securities either currently held or previously owned and eligible for participation in such actions.

• Confirm class membership and prepare and file separate claims on behalf of clients; correspond with claims administrators, monitor recoveries, and properly account for and credit payments on claims.

• Provide historical buys and sells of individual securities during specified class periods so that this information can be used as support for any securities litigation claims.

• Provide monthly and customizable reporting relating to class action notices, class membership, claims filed, claims accepted or rejected, and payments received.

Public Information Requests

• Support TRS's requirement to respond timely to open records requests in line with the Texas Public Information Act2 when the information is held for TRS by the custodian.

Audit Support

• Annual review of Respondent’s financial statements performed by an independent auditor.

• Annual SOC 1 reports and, as part of this RFP, 2 prior years.

G. Transition Services and Implementation

a) If applicable and upon execution of the Contract, Contractor shall, to the greatest extent practical and as set forth in the response to this RFP, take all actions necessary to transition services from TRS’ current service provider, which shall include undertaking all necessary supporting, reporting, and accounting functions within the scope of this RFP.

b) Contractor shall develop detailed project plans by January 15, 2022, subject to TRS’ approval for all areas associated with the transition of services. Project plans shall specify transition activities to be undertaken and include a step-by-step transition timetable, the names of all Contractor personnel involved in each step, and resource requirements needed to successfully transition services. Resource requirements shall include descriptions of the estimated amount of input and staff time required of TRS staff.

c) All actions necessary to perform transition services shall be coordinated with TRS and, as necessary, TRS’ current service provider. TRS will have final authority regarding all actions taken to be taken concerning the transition of services.

d) Transition services shall be completed so that the Contractor may seamlessly assume all responsibilities under the Contract as of 12:00 a.m. Central Time on August 1, 2022.

e) Transition Services Upon Contract Termination or Expiration:

i. Custodian services will be solicited by TRS prior to the expiration of the Contract resulting from this solicitation. Should the subsequent Contract for custodian services be awarded to a provider other than the Contractor awarded this solicitation, Contractor shall, to the greatest extent possible, cooperate with TRS in executing all actions necessary to facilitate a smooth and orderly transition to the new service provider.

ii. Upon termination or expiration of the Contract resulting from this solicitation, Contractor shall promptly and with due care and diligence pay over, assign, or transfer, as applicable, the properties in TRS’ accounts to TRS or a third party custodian designated by TRS through proper instructions, including withdrawing and transferring any part of TRS’ accounts then held in any collective investment trust of Contractor. Contractor shall deliver, duly endorsed and in the customary form for transfer, all securities, funds, and other property then held by it under this Contract and transfer to any account of the successor custodian all TRS securities held by Contractor or its nominees in a depository institution. All endorsements, deliveries, and transfers shall be performed in an orderly and timely manner and Contractor shall not charge TRS any additional fee in connection

2 Tex. Gov’t Code Ch. 552.

Solicitation Name: Master Custodian and Securities Lending Services with such services. Any balance remaining after payment of applicable fees and expenses shall be paid over to TRS or such third party within thirty (30) days.

H. Maintenance and Support Maintenance and on-going support will be required. The structure to identify maintenance and support considerations will occur within the service team governance meeting structure and will be documented and monitored through the Service Level Agreement.

I. Acceptance Criteria for Deliverables

The Service Level Agreement will outline deliverables for each service and will include deliverable description and expected delivery timelines. The remediation or escalation process of an insufficient deliverable will be addressed in the Service Level Agreement. Note that the Service Level Agreement will be contractually tied to the master agreement.

J. Reporting

The Service Level Agreement will outline reporting deliverables for each service and will include deliverable description and expected delivery timelines. The remediation or escalation process for a report that doesn’t meet expectation will be addressed in the Service Level Agreement. Note that the Service Level Agreement will be contractually tied to the Contract.

K. Accommodations and Equipment

If certain vendor Contractors are assigned to work and be embedded within TRS teams, TRS will provide the Contractors with physical workspace and badge access to TRS facilities, TRS equipment and network access for the duration of their engagement. The process of allocating TRS equipment to the Contractor will be handled according to established TRS IT processes, including but not limited to the Non-TRS Workers Policy and TRS Background Check Policy.

L. Invoicing Requirements

Based on a negotiated flat fee, the Vendor will invoice TRS quarterly for services provided in the previous period based on an agreed-upon schedule. Contractors will be using an electronic vendor portal (TRS PAVES) to submit invoices:

https://www.trs.texas.gov/Pages/procurement_PAVES.aspx.

Invoices will be reviewed and approved by the TRS vendor relationship manager to confirm services have met acceptance and performance criteria. TRS will not pay for any expenses outside of the negotiated flat fee without prior written approval by TRS. TRS will not reimburse travel expenses to attend meetings with TRS representatives or the TRS Board of Trustees.

M. Communication Plan

Upon execution of the Contract associated with this solicitation, TRS will set up a kickoff meeting with the Contractor’s Project Manager. At the kickoff meeting, TRS and Contractor will review all terms of the Contract and discuss:

• How to perform all the tasks outlined in the Contract

• Deliverables of the Contract

• Timing of delivery of deliverables

• Required forms, such as insurance certificates

• Contract terms

• Invoicing requirements

• Performance monitoring

Solicitation Name: Master Custodian and Securities Lending Services Solicitation No.: CC-2200001 https://www.trs.texas.gov/Pages/procurement_PAVES.aspx

• Contract close-out process

Below is the established communication plan for this Contract which outlines how TRS and Contractor will communicate throughout the term of the Contract.

Each service and deliverable expectation will be documented in an agreed-upon Service Level Agreement. Service team leads at TRS and the Vendor will drive the Service Level Agreement content to include how tasks are to be performed, the expected deliverables and their timing.

The service teams will manage deliverables, reporting, issues and projects in a shared tracking mechanism to be determined, available to both the client and the Vendor and described in the Service Level Agreement. Governance meetings will be established for each custody service and the leadership level. At a minimum, each governance meeting will be held monthly. During these meetings, the team leads will monitor the resolution of items listed in the shared tracking mechanism and review the performance of expected outputs.

N. Contractor Staffing TRS reserves the right to request that Contractor replace any Contractor employee whom TRS judges to be incompetent, careless, unsuitable, or otherwise objectionable, or whose continued use is deemed contrary to the best interests of the State and TRS. Upon receipt of a formal written request from TRS’ Primary Contact, Contractor shall propose to TRS a replacement with the same or similar expertise as the individual being replaced who shall perform the services required by the Contract, subject to the approval of TRS.

Contractor shall submit written notification to the TRS Contract Manager of changes to key personnel deemed by TRS to be essential to providing the services described in the solicitation throughout the awarded contract period.

Contractor may not use a subcontractor on the Contract without first receiving written approval from TRS regarding the proposed subcontractor. If Contractor is required to submit a HUB Subcontracting Plan (HSP) and the proposed subcontractor is not listed on the HSP, an amendment of the HSP will be required. Any work to be performed by such proposed subcontractor may not be initiated until the subcontractor has been added to the HSP.

As set forth in TRS’ Background Check Policy, a criminal background check (CBC) of Contractor’s staff is required if, at any time during the life of the Contract, the staff assigned to work on the Contract meets any or all of the criteria listed below:

• Obtains a TRS user ID or password

• Has unlimited security badge access for any length of time

• Has limited security badge access lasting more than 14 calendar days

Further, a CBC may be required depending on the level of access to TRS resources and facilities that is required to perform the services. The CBC will be performed by TRS and Contractor is required to reimburse TRS for the cost of the CBC within 30 days of receipt of notification that the background check is complete.

O. Performance Tracking

TRS…