Smaller_Asset_Managers_Pilot_Program_-__Industry_Question_and_Answers_(Solicitation)_July_9 _2015.pdf

Smaller Asset Managers Pilot Program – US Core Fixed Income Solicitation No. PBGC01-RP-15-0025

Industry Questions and Answers

Question 01: Would PBGC consider a carve-out from a core plus strategy benchmarked against the Barclay’s Aggregate, if it all other requirements of the search are met?

Answer 01: No – Carve outs will not be accepted. PBGC will only accept multi-sector, U.S.

Core fixed income products with at least five years of live performance history. Please refer to the Solicitation for complete requirements about this search.

Question 02: Referencing Attachment I/ PRODUCT LEVEL MANDATORY REQUIREMENTS (CORE FIXED INCOME)/ Section C:

The firm currently has at least one tax exempt institutional account with at least $25,000,000.00 USD invested in the proposed qualifying product as of 12/31/14.

As of 12/31/2014, our firm had at least one tax exempt institutional account at $24.2 MM within the proposed product. Would you make an exception for the above referenced requirement, considering we were very close to the required $25MM during this time period. Please note that as of 3/31/2015, our tax exempt institutional account amount has increased to $24.9MM.

Answer 02: No – PBGC will not make exceptions to the minimum requirements. PBGC will not negotiate the minimum asset requirement that is included in the solicitation. Upon submitting a proposal if a firm is determined to not meet the requirements it will not be considered.

Question 03: Will consideration be given to Passive managers? Or is this strictly active?

We are an institutional index manager and are women/minority owned.

Answer 03: No – This requirement is for active managers only. Consideration will not be given for passive managers.

Question 4: Can you tell me if there are any maximum firm assets under management (AUM) limits to participate in this search? I saw there is a minimum $250 million minimum. Our firm has a total of $9.6 billion in AUM for all five divisions of the firm. The fixed income division manages $4.9 billion as of March 31, 2015. AUM for the Core Fixed Income product at the firm is $437 million. We have been told several times that we didn’t have enough fixed income AUM to participate in several public fixed income searches in the past.

Answer 04: There is no maximum firm AUM limits to participate in this search/requirement.

Question 05: We are evaluating your recently-issued RFP for US core fixed income managers for the smaller asset managers pilot program. I was hopeful you could offer some guidance on what your organization considers to be a ‘smaller’ manager, ie; are there specific limits on the size of the overall firm, length of time in business, etc… that you use to define a ‘smaller’ manager? Also, it would be helpful if you would also indicate to what extent your organization is comfortable with a strategy that takes positions in out-of-benchmark and non-investment grade securities. We are intending to submit a response but I wanted to clarify these points before proceeding.

Answer 05: No determination will be made on small managers and there is no AUM maximum included in the solicitation. Additionally, there are no restrictions in the RFP regarding out-of-benchmark and non-investment grade securities. Investment guidelines shall be established between PBGC and the contractor subsequent to contract award. Please note that the purpose of the Smaller Asset Manager Pilot Program is to encourage the participation of smaller firms that may have been precluded from previous searches conducted by PBGC.

Question 06: The Firm being registered with the SEC for at least five years, our firm was spun out of an unaffiliated company in 2012. As such, the entity has only been registered with the SEC since March 2012; however, the strategy was run by our founder and current CIO before the spin out (an SEC registered IA at the time) beginning in January 2009. Would the PBGC consider this product?

Answer 06: No – PBGC will not negotiate the minimum requirements that are included in the solicitation. Upon submitting a proposal if a firm is determined to not meet the requirements they will not be considered. PBGC will not make exceptions to the minimum requirements.

Question 07: The $250 million minimum for the product, the Strategy currently has approximately $100 million in AUM; however, it previously had upwards of $400 million while being operating at the Strategy’s predecessor firm. Would consideration be given based on historical AUM?

Answer 07: No – PBGC will not negotiate the minimum asset requirement that is included in the solicitation. Upon submitting a proposal if a firm is determined to not meet the requirements it will not be considered. PBGC will not make exceptions to the minimum requirements.

Question 08: The $25 million tax-exempt account requirements, we do not currently manage a tax-exempt account that meets or exceeds this threshold. Would you consider a product that does not have a $25 million tax-exempt account?

Answer 08: No – PBGC will not negotiate the minimum tax-exempt account requirement that is included in the solicitation. Upon submitting a proposal if a firm is determined to not meet the requirements it will not be considered. PBGC will not make exceptions to the minimum requirements.

Question 09: Is the RFP available in MS Word format?

Answer 09: The MS Word document of the RFP will not be made publically available. The offerors may copy and paste from the Adobe document.

Question 10: Does the Standard Form 1449, Solicitation/Contract/Order for Commercial Items, need to be submitted with the proposal? If it does, how do I find the information for items 12, 17a, and would space 24 be our annual fee?

Answer 10: The Standard Form 1449 needs to be submitted with the proposal. Block 12, Discount Terms may be left blank at this time. Block 17a, Contractor/Offeror: Shall include the offerors’s name, address, and DUNS Number. The offeror’s CAGE code shall be included in the Code Field and the Facility Code may be left blank. Block 24, Amount: This Block as well as Blocks 19, 20, 21, 22, and 23 may reference the pricing schedule contained in Section B of the

RFP.

Question 11: Page 33 of RFP, Item B: "The firm must manage at least a combined $250 million USD as of 12/31/14 in multi-sector, US Core…." How do you define "multi-sector"?

Answer 11: PBGC defines “multi-sector, US Core” as any US Core product that includes two or more sectors and is managed against the Barclay US Aggregate Bond Index. PBGC will not consider single-sector products. However, it is the Offerors’ independent discretion on how they respond to the questions contained in the technical evaluation questionnaire.

Question 12: Page 33 of RFP, Item D: Can we provide the required 5 years of required performance history in an Excel spreadsheet? Do you prefer monthly returns?

Answer 12: Yes – Performance histories may be submitted in an excel spreadsheet. However, as Item E states, all products must have a GIPS compliant performance presentation to be considered. Please see the amended solicitation for a detailed explanation of what data is expected.

Question 13: Which volume Section K should be included. Or, is Section K completed only if the business is awarded the firm?

Answer 13: Section K shall be included in Volume III, Business/Price Proposal.

Question 14: In reference to Section C - II, Fidelity Bond and Insurance Coverage Amount: Our Director’s and Officer’s and Errors and Omissions Policy coverage is $70,000,000 and our deductible is $2,000,000 per claim. If selected to manage the assets for PBGC, would our current coverage be deemed sufficient?

Answer 14: No – Please see the amended Statement of Work and Attachment I. The offeror shall have or acquire within six months of contract award errors and omissions coverage in the minimum amount of $2,000,000.00 with a maximum deductible of $75,000.00. PBGC will not negotiate the minimum requirements that are included in the solicitation. Upon submitting a proposal if a firm is determined to not meet the requirements it will not be considered. PBGC will not make exceptions to the minimum requirements.

Question 15: The RFP states that it is looking for a Core Fixed Income Manager. Can you define “Core” and whether Core Plus products are desirable? If so, what are the parameters for utilizing US high yield, non-dollar debt, and emerging market debt?

Answer 15: A Core product is a fixed income product that includes two or more sectors and is managed against the Barclays U.S. Aggregate Bond Index. PBGC will not consider single-sector products. Investment guidelines, including the use of out-of-benchmark securities, shall be established between PBGC and the contractor subsequent to contract award. However, it is the Offerors’ independent discretion on how they respond to the questions contained in the technical evaluation questionnaire.

Question 16: Can we get the investment policy statement and investment guidelines which will serve as the basis for review of this RFP?

Answer 16: Yes – PBGC’s Investment Policy Statement is publicly available on the PBGC website. Investment guidelines shall be established between PBGC and the contractor subsequent to contract award. Please refer to the Solicitation, specifically, Section M Evaluation Factors for Award that describes the process that PBGC will use to evaluate proposals. Please see the link below for the Investment Policy Statement:

http://www.pbgc.gov/documents/IPS-May2011.pdf

Question 17: In the Investment section of the RFP, it requests that characteristics and returns be provided since inception, but earlier it required characteristics since inception or 10 years whichever is shorter. Can you clarify which time period you prefer for this RFP?

Answer 17: Yes – the characteristics requested in Item C.iii of Attachment I (Product Level Mandatory Requirement) shall be as of 12/31/2014. The information ratio calculation shall be calculated as the past ten years or since inception, whichever is shorter. Please see the amended solicitation which describes in detail what the offeror shall provide for each table.

Question 18: Is there a full-cycle tracking error target in mind?

Answer 18: No –Please refer to the Solicitation, specifically, Section M Evaluation Factors for Award that describes the process PBGC will use to evaluate proposals.

Question 19: We performed the rolling 3 year IR calculation according to your methodology in the Mandatory Requirements section and qualify for inclusion. The RFP requests a printout of Table 6 from Attachment III, but it does not request a printout of the rolling 3 year IR calculation. Do you want the spreadsheet that calculates the rolling 3 year IR average submitted as well?

Answer 19: Yes – PBGC will verify the information ratio calculation using amended Table Mandatory 1 in the solicitation. Please see the amended solicitation which describes in detail what the offeror shall provide for each table.

Question 20: Under Attachment III, Professional Staff and Resources, question # 22 about the annual bid ask spread for issues in the portfolio. We do not store the explicit bid/ask spread at trade for each security in the portfolio in our database. Is it acceptable to estimate this amount using the actual trades in each of the government, corporate and structured product sectors?

Answer 20: Yes. However, it is the Offerors’ independent discretion on how they respond to the questions contained in the technical evaluation questionnaire.

Question 21: In the Investment Return section, Table 6 covers a 5 year period. Tables 7, 8 and 9 are open ended. How far back are you requesting history for those tables?

http://www.pbgc.gov/documents/IPS-May2011.pdf

Answer 21: Please see the amended solicitation which describes in detail what the offeror shall provide for each table.

Question 22: Table 9 breaks out the industry level holdings in the corporate sector. Are you asking for the % of the total portfolio and benchmark or are you asking for the % of the corporate sector and the % of the corporate index which is the benchmark for the corporate sector.

Answer 22: The data for this table should be the percentage of the total portfolio and benchmark.

Question 23: Is Table 16 requesting the name of every client over $5mm. Certain client contracts contain nondisclosure clauses that would prevent sharing their name. Are we able to provide a description of the client type for those few that are sensitive to name disclosure?

Answer 23: Yes – descriptions are acceptable. However, it is the Offerors’ independent discretion on how they respond to the question contained in the technical evaluation questionnaire.

Question 24: The RFP mentions the CFA Institute Code of Ethics and asks if it is incorporated into the adviser’s Code of Ethics (pp 10 and 44). If a firm incorporates the same broad principles as the CFAI Code but are not required to specifically adopt the CFAI Code nor repeat the provisions of the CFAI Code verbatim, is that expected for the contract award?

Answer 24: No – adoption of the CFA Institute Code of Ethics and Standards of Professional Conduct is not mandatory for award. However, it is the Offerors’ independent discretion on how they respond to the questions contained in the technical evaluation questionnaire. Please refer to the Solicitation, specifically, Section M Evaluation Factors for Award that describes the process PBGC will use to evaluate proposals.

Question 25: What is the client service model that PBGC expect from the successful bidder(s)? What type of personnel is preferred? In addition to the defined reporting schedule from the RFP, what has been the model that PBGC found to be most beneficial?

Answer 25: Please refer to the Solicitation, specifically, Section M Evaluation Factors for Award that describes the process PBGC will use to evaluate proposals. However, it is the Offerors’ independent discretion on how they respond to the questions contained in the technical evaluation questionnaire.

Question 26: In case of investment advisors, Statement on Standards for Attestation Engagements (SSAE) No. 16 (formerly SAS 70) audit focuses on advisors’ internal controls relating to safeguarding client assets. Such audit report is generally required for registered investment advisors that have custody of their client funds or securities along with performing custodial duties and operations.

Certain firms are not required to undergo an SSAE 16 (formerly SAS 70) type examination because it does not take custody of its clients’ funds or securities. The firms have procedures and processes in place to ensure that it does not take custody of client funds or securities at any time, which procedures are tested and evaluated on an annual basis by an independent third party compliance consultant.

In view of the above, would the absence of SSAE 16 audit disqualify a firm from providing investment management services to PBGC?

Answer 26: No – However, it is the Offerors’ independent discretion on how they respond to the questions contained in the technical evaluation questionnaire. Please refer to the Solicitation, specifically, Section M Evaluation Factors for Award that describes the process PBGC will use to evaluate proposals.

Question 27: Our strategy is a unique approach to constructing a Core-plus bond portfolio in that we replicate the duration of the aggregate index using only Treasury futures, then we generate excess return over the index by managing a short duration portfolio of hedged (for interest rate risk and for equity risk) convertibles. Our Composite goes back to 1997 and we have generated about 300 basis points of net excess return (annualized). Would this strategy be appropriate for the PBGC?

Answer 27: Additional information is needed within the Offerors’ response to the solicitation. Please note utilizing any form of leverage, including the use of derivative contracts to replicate leveraged positions, is prohibited. Specifically, derivatives shall not be utilized to leverage the portfolio beyond the maximum risk level associated with a fully invested portfolio of physical securities. However, it is the Offerors’ independent discretion on how they respond to the questions contained in the technical evaluation questionnaire.

Question 28: Our product is an open-end commingled investment company registered under the Investment Company Act of 1940 regulated by the U.S. Securities and Exchange Commission (SEC). Would such an entity be eligible to compete for PBGC’s fixed income investment mandate?

Answer 28: No – This requirement is for products available in a separate account format only.

Consideration will not be given for commingled products.

Question 29: Would you be open to investing in a commingled fund?

Answer 29: No – This requirement is for products available in a separate account format only.

Consideration will not be given for commingled products.

Question 30: Our errors and omissions coverage is currently $50 million with a deductible of $1 million. Is this acceptable?

Answer 30: No – please see the amended Statement of Work and Attachment I. The offeror shall have or acquire within six months of contract award errors and omissions coverage in the minimum amount of $2,000,000.00 with a maximum deductible of $75,000.00. PBGC will not make exceptions to these minimum requirements.

Question 31: Are the proposal Volumes to be packaged in separate binders? (total 21 binders).

Or, can Volume I, II, and III be provided in the same binder but separated by tabs? (total 7 binders)?

Answer 31: Volumes I, II, and III shall each be submitted separately in a 3-ring binder with seven copies of each volume totaling 21 binders.

Question 32: On page 76, “Offer Validity Statement”, can those statements appear in the cover letter or does it have to appear within Volume III?

Answer 32: The Offer Validity Statement of Volumes II and III may be included as a cover letter.

Question 33: Would you be open to reviewing our sample investment management agreement?

Answer 33: Please refer to the Solicitation, specifically, Section M Evaluation Factors for Award that describes the process PBGC will use to evaluate proposals. However, it is the Offerors’ independent discretion on how they respond to the questions contained in the technical evaluation questionnaire.

Question 34: Should the price proposal appear in a separately sealed envelope? Does the price proposal need to be bound?

Answer 34: The price proposal does not need to appear in a separately sealed envelope but shall be included in Volume III, Business/Price Proposal, and structured in accordance with L.12, Written Proposal Requirements, of the solicitation.

Question 35: The RFP states: “Diligent effort shall be exercised to avoid the purchase of a security where the PBGC is likely to terminate the issuer’s underfunded pension plan.” What source and criteria does PBGC use to determine if a plan is underfunded and likely to be terminated? And, will a list of plans that are likely to be terminated be provided to the manager upon mandate award?

Answer 35: No – PBGC does not supply a list of plans that are likely to be terminated. PBGC expects the money managers under the contract to provide a diligent effort to not intentionally purchase a security where the PBGC is likely to terminate the issuer’s underfunded pension plan.

However, it is the Offerors’ independent discretion on how they respond to the questions contained in the technical evaluation questionnaire.

Question 36: Does the contract clause regarding the “Chinese wall” between trading and investment personnel simply require investment teams to trade solely on publically available information?

Answer 36: No –this concerns any activities that may hinder the contractor’s ability to buy or sell in the marketplace with full discretion on behalf of PBGC.

Question 37: Will PBGC be administering background checks for this contract?

Answer 37: In accordance with Section H, PBGC-03-003, Suitability Determination Requirements, PBGC reserves the right to conduct background investigations when deemed appropriate.

Question 38: Please provide PBGC’s record retention requirements. The link provided in the RFP is not working.

Answer 38: The hyperlink (http://www.pbgc.gov/documents/Final-RM-Interim-Guidance- 2012.pdf) in the solicitation is functioning. The referenced document will also be uploaded to FedBizOpps.

Question 39: Would a firm’s Form ADV, GIPS Composite Disclosure and/or Unaudited Financials be sufficient documentation of a firm’s total AUM?

Answer 39: Yes – a Form ADV would be acceptable. However, it is the Offerors’ independent discretion on how they respond to the requirements contained in the solicitation.

Question 40: Is “sub-sectors” for fixed income strategies referring to strategy style (core, core plus, high yield, etc.) or types of securities (investment grade corporates, structured products, governments, etc.)?

Answer 40: Sub-sector refers to strategy styles such as high yield, core, core plus, emerging market debt, etc.

Question 41: Are unaudited financials and a statement confirming the firm’s positive net worth from an Independent CPA, sufficient to meet this criterion?

Answer 41: Yes – if audited financial statements are not available, please provide unaudited financials. If the firm does not provide its non-SEC financial statements, provide a letter confirming a positive net worth for the firm from an independent CPA firm and details on the financial condition of the firm.

Question 42: Is PBGC willing to have their name released to a firm’s independent CPA for the purposes of confirming a positive net worth? This may be required due to tax regulations.

Answer 42: Yes – as this solicitation is open to the public, PBGC is willing to have our name released.

Question 43: Should all of the tables included as part of section J. Attachment II be included in a single excel file or is a separate excel file required for each attachment?

Answer 43: Each excel table should have its own tab with the table number as the title. Table Mandatory 1 and Table Mandatory 2 shall be submitted as one file with each table on a separate tab. The remaining tables shall be submitted in one file with each table on a separate tab. Please see the amended solicitation which describes in detail what the offeror shall provide for each table.

Question 44: What is meant by “commercial risk systems”?

Answer 44: As part of its risk oversight, PBGC may use outside, third-party vendors for data analysis. However, it is the Offerors’ independent discretion on how they respond to the questions contained in the technical evaluation questionnaire.

http://www.pbgc.gov/documents/Final-RM-Interim-Guidance-2012.pdf http://www.pbgc.gov/documents/Final-RM-Interim-Guidance-2012.pdf

Question 45: Is data for the tables listed only required for the three quarters stated, December 31, 2014, September 30, 2014 and June 30, 2014 or is it required back quarterly to December 31, 2009?

Answer 45: No – please see the amended solicitation which describes in detail what the offeror shall provide for each table.

Question 46: We are not at liberty to disclose in detail the AUM for our clients by name. Would information such as “over $100 million” and client name or client type and specific account size be sufficient?

Answer 46: Yes – descriptions are acceptable. However, it is the Offerors’ independent discretion on how they respond to the question contained in the technical evaluation questionnaire.

Question 47: If a firm does not receive a “pass” rating during Phase I of the solicitation process, is it possible to request a review of the decision?

Answer 47: If eliminated from the competition at any point during the evaluation process, the firm will be notified in writing and may request a pre-award debriefing in accordance with FAR 15.505.

Question 48: Is this solicitation open to fund of hedge funds that primarily invest in fixed income strategies?

Answer 48: No – This solicitation is not open to fund of hedge funds.

Question 49: Our firm has more than one US Core Multi-Sector product that can pass the mandatory requirements. May we submit more than one product for this search?

Answer 49: No – PBGC will only consider one product per firm.