PBGC_RFP_16PBGC25R0052_Attachment_3_-_Phase_2_Technical_Approach_Questionnaire.pdf

ATTACHMENT 3 – TECHNICAL APPROACH QUESTIONNAIRE

ACTIVE EMERGING MARKET EQUITY INVESTMENT MANAGEMENT SERVICES

REQUEST FOR PROPOSAL No. 16PBGC25R0052

The offeror must respond to each of the questions in the format below.

FACTOR 2 - TECHNICAL APPROACH

Where tables are indicated as part of a question (Tables 1-14 below), please provide data in the attached Excel tables (Attachment 6). The Excel tables in Attachment 6 are the required template to be completed by the Offeror.

A. INVESTMENT PHILOSOPHY

1. Describe your investment philosophy and why you believe it will be successful in the future, including your basic investment beliefs and assumptions reflected in your investment strategy. Please discuss your views about market efficiency in the emerging markets equity (MSCI Emerging Markets Equity) sector.

2. Describe your investment strategy (e.g., bottom-up, top-down, fundamental, quantitative, etc.) in detail, the investment style (e.g., growth, value, core, etc.) that best describes your strategy, the benchmark against which the strategy is managed.

3. Explain how you earn excess return. What are the sources of value-added performance (e.g., security selection, sector selection, country allocation, foreign currency management, factor exposure management, market timing, information advantage, etc.) of this strategy? What is your expected excess return over your benchmark?

4. Describe the circumstances or market conditions that would favor the prospective return, on both a relative and absolute basis, of your investment strategy. Under what conditions would you expect diminished prospective return potential for your investment strategy, and how would you position your portfolio in such an environment?

B. INVESTMENT PROCESS

1. Describe how you source investment ideas:

a. What is the universe of securities considered for investment? Are there any non-benchmark areas that you normally include in your investable universe or benchmark areas that you normally exclude? Please discuss sector, country and region criteria for your universe.

b. What is the fund’s market capitalization focus?

c. What types of securities (common, preferred, convertibles, ADRs, ETFs, p-notes, etc.) are used?

d. Describe any screening used to narrow your investable universe, the characteristics screened, and why those characteristics are considered important in identifying superior investments. Please discuss any ESG screens that are utilized for the proposed fund.

2. Describe your investment research process.

a. Describe the structure and organization of your firm’s research capability. Are the research analysts centralized or dedicated to this mandate or team? Describe how you assign coverage of your investable universe. If research coverage is specialized, please indicate the segregation of coverage within the team.

State the location(s) where such research is carried out and what specific research is conducted at each location.

b. What research activities (e.g., financial modeling, company visits, industry analysis, factor or signal research, etc.) are conducted to evaluate investment ideas? Please be specific. What output is produced (e.g., investment reports, financial forecast spreadsheets, etc.)? Is a detailed financial model prepared and updated for each investment candidate and portfolio company? Please provide a representative sample of your research product. For a quantitative investment process, how often are new factors added to your alpha model?

c. How is research disseminated and evaluated? Are there recurring meetings to review investment/research recommendations? What’s the research process for monitoring portfolio holdings?

d. Does your research process incorporate top-down macroeconomic information used to determine portfolio positioning or factor exposure? If so, please describe.

i. What data sources do you use to inform country, sector or style weighting?

ii. How do you evaluate the effectiveness of your macro calls in your attribution?

e. If your strategy relies on quantitative models or screens to generate research ideas, alpha signals or to assist in portfolio construction, please answer the following questions concerning data collection (if your process does not use quantitative models or screens, please skip this question).

i. What data sources do you rely on for 1) financial data; 2) company-specific information; 3) market valuation tools (e.g. Holt); 4) market technicals (e.g. price momentum, consensus estimates); 5) other investment data such as bond prices or underlying derivatives; 6) other (e.g. S&P rankings)?

ii. Are you accessing proprietary data not available to the outside public?

iii. Please articulate what makes your information gathering process unique relative to other strategies that rely on quantitative models.

iv. What kind of back-end checks do you incorporate to ascertain the quality and the meaningfulness of the data?

f. Describe the major research and technology initiatives implemented in the past three years. How did these initiatives enhance your firm’s capabilities?

g. Describe how the firm evaluates its internal investment research effort? How does the firm evaluate the success or failure of the research analysts? Describe how the firm achieves and maintains an information advantage through its research effort.

3. Describe your security selection and divestment process.

a. Describe the decision-making process for the purchase of a security. Who is involved in considering the security for purchase and who makes the final decision?

b. Describe the decision-making process for the sale of a portfolio holding. Do you have a sell discipline?

Who is involved in considering the sale of a position and who makes the final decision?

c. What recurring meetings/disciplines support the investment process?

d. Do you expect to add value by trading around positions based on price movements? Do you tend to let your winners run?

e. Describe the relative importance of the following attributes in your evaluation of a security. Discuss how you evaluate each attribute:

i. Country selection, including geopolitical risk considerations

ii. Company focus/strategy/competitive advantage

iii. Management quality/incentives

iv. Capital structure/balance sheet

v. Price/valuation

vi. Other (please specify)

4. Describe the role of quantitative modeling within the investment process. Please skip this question if your investment process doesn’t use quantitative modeling.

a. Provide a brief description of the underlying factors used to model return expectations. How do you weight factors in the model? How dynamic is the process with respect to factor weightings, factor inclusion/exclusion and modeling techniques?

b. Why do you believe your approach to modeling publicly available information is superior to your competitors? How are you using information in such a fashion that can be considered proprietary?

c. What qualitative information or subjective judgments do you incorporate into the return forecasting process? If applicable, please provide an example of a past qualitative input or instance where the model was overridden.

d. Explain how your optimizer makes trade-offs between forecasts, constraints and risk. Please describe the constraints used.

e. Does your process seek to confirm investment rationales for highly-ranked or bottom-ranked securities or assets before portfolio implementation? How do you treat information that is not easily “captured” by the model? Do you make changes to the optimized trade list and why?

f. How often are return expectations generated? How often is the optimization run?

g. Please describe the process for maintaining and enhancing your quantitative model(s), the frequency and who is responsible.

h. Please provide a timeline of past enhancements to your model(s).

5. Describe your portfolio construction and management process.

a. How many securities are typically held in your portfolio? What is the average position size? What is the average holding period for an individual security? What is the expected level of annual turnover of the strategy (both name and dollar terms) over a full market cycle?

b. Describe how your firm’s investment process evaluates liquidity constraints for the subject product’s universe of stocks. What rules does the firm employ in its process to ensure an appropriate level of liquidity exists for the portfolio holdings? Does liquidity affect the level of turnover in the portfolio? In the past, has there been any adjustment to the firm’s process to address liquidity limitations due to growth of the size of its assets under management? Does the firm anticipate closure of the proposed fund or strategy in the future? What criteria would induce the firm to take such action?

c. Who determines security, sector, and country weightings? How are those exposures established and changed? What factors are considered in making those decisions?

d. How often is the portfolio rebalanced and what is the process for doing so?

e. Describe how you use benchmark tracking error to construct and manage a portfolio. What is the expected annualized tracking error for the anticipated portfolio over a one-year period and over a market cycle (i.e., 3 to 5 years)? How is tracking error measured and managed?

f. Do you consider active share when constructing portfolios? Please fill out Table 1 in Attachment 6.

g. Describe in detail your use of derivative instruments (e.g., options, futures, forwards, swaps, etc.) to manage portfolio exposures, achieve performance objectives, or modify portfolio or security risk.

Discuss how such instruments contribute to successful implementation of your investment strategy.

Explain the risks involved in using derivatives and how you manage them.

h. To what extent, and in what form, does your strategy rely on the use of financial leverage to achieve its objectives, if at all?

i. Provide details of your firm’s currency management strategies. Does your firm employ hedging or cross hedging strategies? If so, what hedging instruments does your firm use?

i. Does your investment strategy include the active management of currency exposure as a way to add value over the benchmark?

ii. If yes, please explain the process you employ in active currency management, the research that backs the opportunity for active currency management, and support your claim that the return exceeds transaction costs.

j. What is the role of cash in your portfolio? Do you adjust cash levels to manage portfolio risk? Would you accept a 5% cash constraint? If not, why? Please fill in Table 2 in Attachment 6.

6. Please provide the following portfolio data:

a. Utilizing Table 3 in Attachment 6, provide a geographic breakdown of BOTH the proposed product and its benchmark. Specify the benchmark used.

b. Utilizing Table 4 in Attachment 6, provide the portfolio characteristics for BOTH the proposed product and its benchmark. Please specify the benchmark.

c. Utilizing Table 5 in Attachment 6, provide the sector allocations of BOTH the subject product portfolio, its benchmark, and the relative value vs. the benchmark at the end of the periods indicated. Please specify the benchmark used

7. Utilizing Table 6 in Attachment 6, provide the market capitalization percentage breakdown for the holdings in the subject product and benchmark.

8. Utilizing Table 7 in Attachment 6, provide a summary of the out of benchmark exposures of the portfolio.

9. Utilizing Table 8 in Attachment 6, provide a sample portfolio for the proposed product.

C. PORTFOLIO RISK MANAGEMENT

1. Portfolio Risk Management:

a. Please provide your internal guidelines for the proposed product under a fully discretionary basis.

b. What are the maximum and minimum security, sector, and country exposures? What is the maximum and minimum number of securities allowed?

c. What is the permissible range of exposures to out of benchmark countries? What is the formal constraint?

d. Do you explicitly constrain systematic factor risk (e.g. market risk, size, style, etc.)?

e. Does the investment process incorporate discreet risk parameters (e.g., standard deviation, drawdown potential, etc.)? If so, describe any acceptable tolerances for those parameters for this Product.

2. Risk Monitoring:

a. Who is responsible for risk monitoring? At least one person responsible for risk management must have at least 1 year of experience in investment risk analysis. Do you maintain an internal, dedicated risk team? If so, who does that team report to and what is the process for monitoring and effecting portfolio changes when necessary? Please describe the interaction between risk professionals within your firm and the investment team responsible for this strategy.

b. Describe any risk tools used and if they are proprietary or purchased from a third party. how this analysis is incorporated in the portfolio management process.

c. Describe the use of stress testing or scenario analysis in managing the portfolio.

d. Provide a sample risk report for the proposed product.

D. PERFORMANCE (Simulated results are not acceptable.)

(Note: All performance data must also be provided in the attached Microsoft Excel file where all formulas are visible.) If your firm is not compliant with the Chartered Financial Analyst Institute (CFAI) and the Global Investment Performance Standards (GIPS), please provide a description of any non-compliance.

Provide quarterly, annual and long-term performance on a total return basis in a manner consistent with the GIPS as espoused by the CFAI to the extent possible.

1. Utilizing Table 9 in Attachment 6, provide quarterly and annual performance on a total return basis GROSS OF

FEES for the proposed product in a manner consistent with the Global Investment Performance Standards (GIPS) as espoused by the Chartered Financial Analyst Institute (CFAI) to the extent possible. Provide necessary certifications that all performance is GIPS compliant. If they are not compliant, explain why not. Simulated returns are not acceptable and the proposed active MSCI Emerging Markets Equity strategy must include a continuous track record. Provide performance data for 10 years or since inception if track record is less than 10 years. In the table, please provide data to at least two decimal places. Please use composite performance and present all performance data against the composite’s stated benchmark (the benchmark used to calculate the information ratio in Volume 1, Mandatories).

2. Utilizing Table 10 in Attachment 6, provide the annual returns for the best and worst performing accounts contained in the above composite. Please use GIPS standards.

3. Utilizing Table 11 in Attachment 6, provide the average of all rolling 36-month Information Ratios over the last seven years, or since inception if track record is less than seven years through 12/31/24.

The rolling 36-month average Information Ratio must be calculated as follows: calculate the monthly geometric1 excess return for each month of performance. Then, calculate the annualized 36-month excess return for each rolling 36-month period. Divide this by the annualized standard deviation2 of excess returns for each rolling 36-month period. Finally, calculate a simple average of these results. For example, if a product has 24 rolling 36-month periods since inception, provide the simple average of those 24 Information Ratios. Table 11 in Attachment 6 contains the correct format and formula calculation required.

4. Utilizing Table 12 in Attachment 6, please provide the performance and key risk statistics (using monthly return data) for the product. (See definitions and required formulas in your calculations below).

Excess Return (Alpha) - The incremental return of a portfolio over the benchmark.

Alpha (α) = X - Y X = the annualized return for the manager Y = the annualized return for the index

Beta - This is a measure of a portfolio’s volatility. Statistically, beta is the covariance of the portfolio in relation to the market.

Beta (β) = [(n)*Σ(xi*yi)] - (Σ xi)(Σ yi)]/[(n)*Σ(yi

2) – (Σ yi) 2] n = the number of observations xi = the return of the first data series (ith observation) yi = the return of the second data series (ith observation) Generally, xi = the portfolio's return series and yi will be a specified index (benchmark)

R-Squared - Otherwise known as the Coefficient of Determination, this statistic, like beta, is a measure of a portfolio’s movement in relation to the appropriate benchmark.

R-Squared = (r)2

(r) = {[(n)*Σ (xi*yi)] - (Σ xi)(Σ yi)}/{[(n)*Σ(yi

2) - (Σ yi)] *[(n)*Σ(xi

2) - (Σ xi)]} n = the number of observations xi = the return of the first data series (ith observation)

1 Geometric Excess ((1+A/100)/(1+B/100))-1 A – Monthly Fund Return B – Monthly Index Return

2 To annualize risk – must multiply by square root of 12 (for monthly) yi = the return of the second data series (ith observation) Generally, xi = the manager's return series and yi will be a specified index (benchmark)

Upside Market Capture Ratio - A measure of the portfolio’s performance in up markets relative to the market itself. The return for the market for each quarter is considered an up market if it is greater than or equal to zero. The Upside Capture Ratio is calculated by dividing the return of the portfolio during the up market periods by the return of the market for the same period. The number of up periods for a given series (x1, … , xn) is the number of positive (and zero) returns in the series.

UMC Ratio = { (1+Rm1)*(1+Rmi)^1/N } – 1/{ (1+Ry1)*(1+Ryi)^1/N } – 1 Rm = return for time period when benchmark (Ry) is positive or zero N = Number of years (e.g. 6 quarters = 1.5 years; 20 months = 1.667 years)

Downside Market Capture Ratio - A measure of the portfolio’s performance in down markets relative to the market itself. A market is considered down if the return for the benchmark is less than zero. The Downside Capture Ratio is calculated by dividing the return of the portfolio during the down market periods by the return of the market during the same periods. The number of down periods for a given series (x1, … ,

xn) is the number of negative returns in the series.

DMC Ratio = { (1+Rm1)*(1+Rmi)^1/N } – 1/{ (1+Ry1)*(1+Ryi)^1/N } – 1 Rm = return for time period when benchmark (Ry) is negative N = Number of years (e.g. 6 quarters = 1.5 years; 20 months = 1.667 years)

Standard Deviation - A measure of the average deviations of a return series from its mean.

StDev = [[ Σ (xi-X)2 ] ½]/n Ann StDev = SD * √(Ny) xi = the ith observation X = mean return for series n = the number of observations Ny = the number of periods in a year (4 if quarterly data, 12 if monthly data)

Tracking Error – The standard deviation of the excess returns of the portfolio versus its benchmark.

Information Ratio - This statistic is computed by subtracting the return of the market from the return of the portfolio to determine the excess return. The excess return is then divided by the standard deviation of the excess returns (or Tracking Error) to produce the information ratio.

IR = Excess Return/Tracking Error

Excess Return = Annualized Manager Return - Annualized Index Return

Tracking Error = Standard Deviation of Excess Return

Sharpe Ratio - This statistic is computed by subtracting the return of the risk-free index (typically 91-day T-bill or some other cash benchmark) from the return of the portfolio to determine the risk-adjusted excess return. This excess return is then divided by the standard deviation of the portfolio.

Sharpe = [Ann Rtn(x) – Ann Rtn(Rf)]/Standard Deviation of x

Batting Average - Batting average is a measure of the frequency of success. This ratio is calculated by taking the number of periods where the portfolio equals or outperforms the selected benchmark, divided by the total number of periods.

Batting Average = numOutperform/numTotal numOutperform = the number of observations where the portfolio outperforms the benchmark numTotal = the number of total observations

5. If you have done an attribution analysis of your proposed product’s investment return variance (both positive and negative) from the stated benchmark return, please provide the annual attribution for each year of performance presented above as an attachment. In the attribution analysis, identify the contributions of country, currency, sector, security selection, out of benchmark allocations, and other.

6. Please provide commentary of the reasons for significant performance variance from the benchmark that you think will help us understand the performance of the product. Attribution should be reflective of how the portfolio manager makes investment decisions. Please reconcile your attribution with your investment philosophy.

7. Describe your attribution model and provide the name of the vendor if appropriate.

8. Describe what activities and analysis you conduct to evaluate the performance of your portfolio and to improve your investment process. How frequent is this self-evaluation conducted?

E. TRADING

1. Is your firm, its parent, or other affiliates a broker/dealer?

a. Does your firm trade for client accounts through this broker/dealer?

b. If so, state how much trading, and the reason for trading with this related party.

2. Outline your internal trading capabilities, as follows:

a. Number, experience and location of trading staff. Is the trading staff segmented by product/asset class?

b. Utilizing Table 13 in Attachment 6, indicate the number of dedicated emerging market equity traders for the proposed product. Describe their experience and tenure at the firm as well as the countries they are responsible for trading. Provide biographical information of the senior emerging market equity trading personnel in an attachment.

c. Utilizing Table 14 in Attachment 6, indicate when and why any trading team members left or joined the firm in the last five years. List by function.

3. What percent of trading for the proposed product is conducted through active interaction with brokers (“high touch”) versus algos and systematic trading platforms (“low touch”)? How do you choose your trading methodology and venue?

4. What are your procedures for monitoring and minimizing trading costs of securities and foreign currencies. Are external transactions cost analysis firms used? Which ones? Provide your estimate of average commissions per share, market impact per share, and any other transaction and custodian costs incurred for the different types of trades you have executed for this subject product.

5. Discuss your policy regarding, and current use of, "soft dollars,” commission sharing agreements, directed trades and recapture programs. If you have soft dollar relationships with broker-dealers, disclose the percent of trades executed tied to soft dollar relationships and a list of resources funded by soft dollars.

6. Provide a description of your trading platform, including systems (proprietary and off-the-shelf) for execution and processing.

7. What processes do you have in place for ensuring pre- and post-trade guideline compliance? What functions are automated? What process do you have in place for human verification? Who signs off on final trading? The person responsible for signing of final trading must have at least one year of experience in trade monitoring. Describe the oversight procedures that would minimize the risk of traders acting outside of their given latitude in executing trades

8. Describe how you ensure fair allocation of trades across accounts.

9. Indicate any enhancements currently underway for the active equity trading capabilities.

10. FX - Do you actively trade your FX through negotiated trades or via a custodian through standing instruction? How do you measure FX transaction cost?

11. What methods do you use to validate you are receiving competitive rates from your FX providers?

12. Has your firm violated an investment guideline in the proposed product over the past three years? Explain the violation(s) and how the issue(s) was (were) resolved.

F. FUND FLOWS

1. Describe your requirements for the acceptance of transfers of assets in-kind into the respective proposed funds.

2. Describe, in detail, the timing (dates the proposed fund is open) and procedures involved in accommodating a client’s cash flows. What are the charges and notice requirements for purchases and redemptions? How are transaction costs assessed to the client transacting?

G. CUSTODY

1. Who is the custodian for the proposed fund?

2. Describe your firm’s pricing and your custodian’s pricing (if appropriate) of individual securities for fund valuation, including source of price information. If a discrepancy exists between your pricing and the custodian’s, how is the discrepancy reconciled? List the staff involved and their specific duties.

3. Describe the oversight of the proposed fund’s custodian. Note the staff involved in this oversight and the process to ensure the quality of custodian services. Include any procedures you use for ensuring the security of your system and that of the custodian. At least one person must have one year of experience in custodian oversight.

H. PROXY VOTING & STEWARDSHIP

1. Describe your proxy voting process. Do you use third parties to assist in the process? Do you have a separate committee that addresses proxy votes and proxy voting policies? If so, name the members, their titles and provide bios. The proxy voting committee should have at least one investment professional to verify that best value can be achieved and at least one individual that can confirm adherence to ERISA.

2. Please provide a copy of your most recent proxy voting policies, relevant for the proposed subject products.

Describe how these policies adhere to ERISA.

3. Describe stewardship efforts and engagement with management and boards of directors. How big is the stewardship and engagement team and what determines their workload? Please provide an org chart.

I. SECURITIES LENDING

1. Does the proposed fund participate in a securities lending program? If so, who administers the program and what has been the gross and net return to the fund (annualized in basis points) attributed to the lending function for each of the years for which you have provided return history? Indicate the lending split to the firm/fund and detail how lending program costs are absorbed.

2. Describe the nature and scope of the securities lending program in the proposed fund (intrinsic value program only, or what type of reinvestment vehicle is used). Include a detailed description of the controls and a list of firms to which the respective proposed commingled fund currently lends.

J. COMMINGLED FUND DOCUMENTATION

1. Provide copies of all commingled vehicle documentation that PBGC would be required to sign or review

(declaration of trust, participating trust agreement, offering documents, etc.).

2. Also provide any documentation that identifies internal constraints that are utilized in managing the proposed product, but are not identified in the documentation provided above.

3. Provide the most recent fund audit results.