PBGC DRAFT RFP 16PBGC25RXXXX Attachment 1 - Statement of Work.docx

ACTIVE EMERGING MARKET EQUITY INVESTMENT MANAGEMENT SERVICES

REQUEST FOR PROPOSAL: TBD

SECTION C – STATEMENT OF WORK

Contents

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. PBGC selects investment managers after a rigorous procurement process and delegates investment discretion to them to manage the Corporation’s investment assets consistent with guidelines specified by contract. The PBGC continuously reviews and evaluates manager performance and conducts extensive due diligence to ensure satisfaction of performance standards and compliance with investment guidelines.

2.0 PURPOSE

The purpose of this requirement is to provide active investment in emerging market equities that performs on a risk adjusted basis in excess of a chosen benchmark, currently the MSCI Emerging Markets 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 emerging market 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 international emerging market equity portfolio that is 100% long only. At PBGC's sole discretion, allocations may range from $250-$400 million and may change at any time during the performance of the contract.

5..0 OBJECTIVE

All assets shall be managed with full discretion in accordance with the fund documents, 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, 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 of economic and 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 have ERISA fiduciary responsibility for the assets under its management. PBGC shall delegate its proxy voting authority to the investment manager. The investment manager 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 unit 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.

6.0 TASKS

6.1 ACTIVE INVESTMENT IN EMERGING MARKET EQUITIES

6.1.1 The firm shall provide active investment in emerging market equities.

a. The proposed strategy must be offered in a commingled trust fund format for beneficial owners that follow ERISA.

1) The commingled fund documentation will be reviewed by the PBGC Office of General Counsel and signed by PBGC appropriate officials (if approved) and the firm.

b. Components of this service include:

1) Investment Philosophy

2) Investment Process

3) Portfolio Risk Management

4) Performance

5) Trading

6) Fund Flows

7) Custody

8) Proxy Voting & Stewardship

9) Securities Lending

10) Commingled Fund Documentation

c. PBGC seeks risk adjusted performance in excess of the MSCI Emerging Markets Index. The Offeror should be able to demonstrate a repeatable investment process that can deliver strong risk adjusted returns on a go forward basis.

d. OPTIONAL - Emerging Markets ex-China Strategy

1) Components of this service include:

2) Investment Philosophy

3) Investment Process

4) Portfolio Risk Management

5) Performance

6) Trading

7) Fund Flows

8) Custody

9) Proxy Voting & Stewardship

10) Securities Lending

11) Commingled Fund Documentation

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.

7.0 SCHEDULE AND MILESTONE DATES

The following schedule of milestones will be used by the PBGC COR to monitor timely progress under this contract.

The following abbreviations are used in this schedule:

DEL: Deliverable IAW: In Accordance With NLT: No Later Than Deliverables are due the next Government workday if the due date falls on a holiday or weekend

DELIVERABLE

b. Holdings Report

c. Investment Philosophy

d. Portfolio-level Characteristics vs. Benchmark

e. Performance Attribution vs. Benchmark

f. Economic and Market Commentary

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

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

The contractor shall mark all deliverables listed in the above table to indicate authorship by contractor (i.e., non-Government) personnel; provided, however, that no deliverable 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 will accept an order for the purchase of shares in the commingled vehicle in accordance with the fund opening dates as outlined in the commingled fund documents. Trade forms will 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 will accept an order for the sale of shares in the commingled vehicle in accordance with the fund opening dates as outlined in the commingled fund documents. Trade forms will be signed in accordance with PBGC’s Authorized Signer’s List, which will be provided after contract award. Cash will be wired to PBGC’s custodian before termination of the contract.