LDI_-_Responses_to_Questions__-_Fixed_Income_-3-17-17.pdf

Responses to Questions

Question 1.

“we have a strong legacy and history with LDI globally. In the U.S., however, …Since

2009, we have built a strong Active Fixed Income and LDI business, attracting over 120 clients and $50 billion in those strategies over that time. However, we only registered with the SEC in 2009 when we started managing third-party assets and our longest long duration benchmark track record extends 9 years, as we used internal insurance money at first to build a marketable track record. Thus, while meeting a majority of your requirements, we would not meet all given our history in the U.S.

I am writing today to see if there is any way we would still be able to be considered for a mandate with the PBGC... Lastly, given the relatively short time period that corporate

DB plans have been adopting LDI in the U.S., a period that really starts post the financial crisis, I think the exhaustive requirements for this RFP would likely narrow the qualified candidate pool to maybe two to three firms. I would advocate for our inclusion to diversify the candidate pool and broaden the options for the PBGC.”

Answer:

Consistent with Section M.2 of the solicitation, each offeror shall submit the responses to the Mandatory Requirements attachments, which will be evaluated on a pass/fail basis. The Mandatory Requirements are further split into two categories, Firm Level

Mandatory Requirements and Product Level Mandatory Requirements. Each offeror shall meet or exceed all of the Firm Level Mandatory Requirements and all of the

Product Level Mandatory Requirements. Passing all of the Mandatory Requirements is required in order for the offeror’s proposals to move on to Phase II.

Question 2

(Referencing Pages 14 & 15 of 100): Would the PBGC please provide additional details on the evaluation criteria for comparing the Bundle Fees for Single or Multiple mandates? It would be helpful to know the number of accounts (or an estimated range) likely to be awarded for the stated AUM ranges. In addition, will the PBGC provide clarity on how it intends to control for the mix of products that provide for different growth or hedging characteristics e.g. a growth oriented strategy might be priced at a different level than a hedging only strategy.

Consistent with Section M.2 of the solicitation Managers will be evaluated based on a minimum of two products and a minimum AUM of $2.5 billion and a maximum AUM of $6 billion of trust fund assets. Managers will be evaluated based on a minimum of two products and a minimum AUM of $6 billion and a maximum AUM of $20 billion of revolving fund assets.

Also, Section C – Scope of Work, outlines the range of strategies included in the solicitation.

Question 3

(Referencing Page 16 of 100): The third paragraph includes a reference to the Trust

Fund investment universe that includes equities. While the LDI Fixed Income manager will take into account the equity allocations in the design of the GlidePath and

Completion Management Services, would you please confirm whether or not the investment manager will be allocated equity assets to manage.

Section C – Scope of Work, outlines the range of strategies included in the solicitation.

The selected investment manager(s) will not have an equity allocation to manage.

Question 4

(Referencing Page 17 of 100): The second full paragraph includes a statement that

“diligent effort[s] shall be exercised to avoid the purchase of a security where the PBGC is likely to terminate the issuer’s underfunded pension plan.” Is this a list that will be provided by the PBGC to the investment manager on a regular basis, in confidence?

PBGC will not provide a list of companies.

Question 5

(Referencing Pages 17 & 18 of 100): Real assets, including infrastructure debt, private senior and mezzanine commercial real estate loans, longer maturity securitized assets

(including CMOs), and certain private markets are a critical part of our asset allocation implementation services that we provide to large institutional investors. For clients accessing our LDI capabilities, these longer-term investments provide diversifying hedging characteristics across the risk / return spectrum. These assets are unique in that they have returns underpinned by stable, bond-like yields and, in some cases, growing, inflation-sensitive cash flows. Real asset debt instruments also tend to have longer maturities representing the long-term nature of financing the underlying infrastructure or property projects. We believe that these mandates are relevant to constructing pension portfolios along the GlidePath. Will these types of investments, or a subset, be considered for implementation under the categories outlined in the solicitation:

a. Long Duration Fixed Income

b. LDI Custom Liabilities

c. Completion, Overlay and other LDI strategies

PBGC’s current Investment Policy Statement does not allow direct private market investments.

Question 6

Firm Level and Product Level Mandatory Requirements – Attachment 1 and 2

(pages 43-48)

Our firm is one of the world’s largest LDI managers and is comprised of several legal entities globally, with an integrated process and team for LDI and fixed income. We would like the PBGC to confirm that we can view the entities in the aggregate for purposes of determining whether or not we meet minimum qualifications for purposes of

AUM and number of clients.

Consistent with Section M.2 of the Solicitation, each offeror shall submit the responses basis. The Mandatory Requirements are further split into two categories, Firm Level

Mandatory Requirements and Product Level Mandatory Requirements. Each offeror shall meet or exceed all of the Firm Level Mandatory Requirements and all of the

Consistent with Section J, Attachments 1 and 2 of the Solicitation, PBGC requirements are based on US Assets Under Management.

Question 7

Attachment 5 – Product Level Technical Evaluation – Questionnaire

(page 59-77)

To demonstrate our breadth of experience in LDI, would it be acceptable to include historic track records for non-US clients?

basis. The Mandatory Requirements are further split into two categories, Firm Level

Mandatory Requirements and Product Level Mandatory Requirements. Each offeror shall meet or exceed all of the Firm Level Mandatory Requirements and all of the are based on US Assets Under Management.

Question 8 Does this LDI search intend to replace the PBGC’s existing Long Duration mandates?

Answer: No.

Question 9 To help determine the right LDI strategy for the Revolving Fund, can you please share how net cash flow shortfalls (i.e. the insurance premium income is less than the benefit payouts) are provided for? Does the PFBC transfer assets from the Trust Fund?

The Revolving Fund investment account is not affected by periodic net cash flows. The

Trust fund reimburses the Revolving Fund at least annually a proportional share of benefit payments and expenses.

Question 10 Regarding Attachment 2, item A.a.3, what functional responsibilities constitute a completion management assignment?

Answer:

The role of the completion manager includes but is not limited to analyzing the liabilities and the benchmarks used in the liability-driven investment (LDI) portfolio, developing a completion portfolio that effectively fills in the gaps in the liability hedge, and works with the plan over time to seek to achieve its targeted endgame solution.

Question 11

Attachment 3, Firm Level Technical Evaluation – Questionnaire

Business Issues and Strength of the Firm

Assets Under Management – Provide the following, adhering to the following format

Discrepancy: PDF - requested dates are: 12/31/2016 - 12/31/2012

Excel Workbook, Attachment 4 Table 1 - dates are: 12/31/2016 - 12/31/2011

Please confirm what dates we should provide data for.

Please use the Excel Workbook. The embedded PDF file is for illustrative use only.

Question 12 Firm Support and Infrastructure and Operations

Provide the location and functions of each of your firm’s investment management offices in the following format:

Discrepancy: PDF - requested dates are: 12/31/2016 - 12/31/2012

Excel Workbook, Attachment 4 Table 3 - dates are: 12/31/2016 - 12/31/2011

Question 13 (No text in body of question in PDF)

Question: Please confirm if “3.” was added in error, or if the text of this question was unintentionally omitted. If unintentionally omitted, please provide question

The “3” in the firm level questionnaire on page 52 of 100 is erroneous. Please ignore.

Question 14

Attachment 5, Product Level Technical Evaluation – Questionnaire

Active Fixed Income Asset Management for LDI Mandates Benchmarked Against

Standard Market Indices

Investment Results

Please provide the monthly returns (to two decimal places) for the subject portfolio and the benchmark, from inception to December 31, 2016.

Discrepancy: PDF - requested dates are: Dec-16 – Nov-06

Excel Workbook, Attachment 6 Table 4 - dates are: Dec-16 – Jan-07

Question 15 Please provide the monthly returns (to two decimal places) for the subject portfolio and the benchmark, from inception to December 31, 2016.

Discrepancy: PDF - Sectors are: Treasuries, Government Related, Corporates

Industrials, Corporates Utilities, Corporates Finance, Securitized US MBS, Other

Excel Workbook, Attachment 6 Table 6 - Sectors are: Treasuries, Govt Related -

Agencies, Govt Related – Local Auth, Govt Related – Sovereign, Govt Related –

Supranational, Corporate - Industrial, Corporate - Utility, Corporate - Financial, Securitized – CMBS, Securitized – ABS, Securitized – Covered, Securitized – US

MBS, Other

Please confirm what sectors you would like us to use.

Question 16 Please provide the key risk statistics (using a monthly basis) of the product in the table below. (See definitions and required formulas in your calculations below table).

Discrepancy: PDF - Risk Statistics are: Portfolio Return (Gross of fees), Benchmark

Return, Alpha, Beta, R2, Up-Market Capture, Down-Market Capture, Standard

Deviation, Benchmark Standard Deviation, Tracking Error, Information Ratio, Sharpe

Ratio, Sortino Ratio & “Batting Average”

Excel Workbook, Attachment 6 Table 11 - Sectors are: Portfolio Return (Gross of fees), Benchmark Return, Alpha, Beta, R2, Up-Market Capture, Down-Market Capture, Standard Deviation, Tracking Error, Information Ratio, Sharpe Ratio, Sortino Ratio &

“Batting Average”

Please confirm what sectors you would like us to use.

Question 17 Portfolio Stability And Growth

Provide the Assets Under Management, adhering to the following format.

Discrepancy: PDF - requested dates are: 12/31/2016 - 12/31/2010

Excel Workbook, Attachment 6 Table 12 - dates are: 12/31/2016 - 12/31/2011

Question 18 Provide the names (codes may be used if required to protect confidentiality) of the major

(i.e.,greater than $100 million) pension, insurance, and other client accounts currently invested in the subject product (12/31/2016market value). Ensure all information requested below is provided. If you need to secure permission from the client before releasing this information, do so before submitting proposal. Using the following format, rank clients from largest to smallest by assets under management:

Discrepancy: PDF – Market Value date is 12/31/2016

Excel Workbook, Attachment 6 Table 13 – Market Value date is 9/30/14

Please confirm what Market Value date we should provide data for.

Please use 12/31/2016

Question 19

Section C, Statement of Work, Section I, Introduction, LDI Investment Management

Services; Paragraphs 2-3 (pp. 16-17):

The second paragraph of the section referenced immediately above states: “PBGC seeks to hire an investment firm(s) to fill the role of advisor of the fixed income assets in the

Revolving Fund.” The third paragraph states, “PBGC intends to add to its roster of fixed income managers in the Trust Fund. PBGC anticipates hiring multiple managers capable of managing fixed income assets across multiple fixed income LDI mandates or strategies as well as provide technical advisory services to design and monitor an LDI glide path process.”

How does the PBGC define or view “LDI” mandates or strategies versus “Long Duration

Fixed Income” mandates or strategies - as previously defined in connection with solicitation PBGC01-RP-15-000 (i.e., what is the difference?)

PBGC defines LDI mandates or strategies as managing highly customized long duration mandates benchmarked to clients’ liabilities whereas Long Duration Fixed

Income mandates are managed to standard industry benchmarks.

Question 20

If an offeror is already on the roster of fixed income managers for the Revolving Fund and the Trust Fund under solicitation PBGC01-RP-15-0008, would the offeror already on the roster need to requalify assets currently under management for those mandates using a long-duration benchmark?

The prior assignment resides with contracts pursuant to solicitation PBGC01-RP-15-

0008.

Question 21

Would the services to be provided pursuant to this solicitation be separate and distinct from services provided under solicitation PBGC01-RP-15-0008? For example, if an offeror is already managing assets against a Bloomberg/Barclays Long Government

Index pursuant to solicitation PBGC01-RP-15-0008, where would that assignment reside: 1) the contract awarded pursuant to solicitation PBGC01-RP-15-0008 or 2) this solicitation?

The prior assignment resides with contracts pursuant to solicitation PBGC01-RP-15-

0008.

Question 22

Will the investment of the assets of the Trust Fund in fixed income LDI mandates be solely subject to the terms and conditions (including pricing) of the contract awarded as a result of this solicitation? Or, is it possible that such investments will be subject to the terms and conditions (including pricing) of the contracts awarded to PBGC’s existing roster of fixed income managers in connection with solicitation PBGC01-RP-15-0008?

Terms, conditions, and pricing of this request is based upon the award of this

Question 23 Section C, Statement of Work, Section I, Introduction, LDI Investment Management

Services, Paragraph 2 (pg. 16):

The section referenced immediately above says: “Portfolio trades (buys and sells) are communicated to and effected by PBGC’s Corporate Investment Department (CID).”

Given that “Portfolio trades (buys and sells) are communicated to and effected by

PBGC’s Corporate Investment Department (CID)” what are the operational aspects/requirements involved in managing the revolving fund assets (e.g., method of communication, timing, integration with technology, etc.)?

Communication is generally by daily email at pre-determined times.

Question 24

Section C, Statement of Work; Section I, Introduction; LDI Investment Management

Services, Paragraph 4 (pg. 16):

The section referenced immediately above states: “The LDI investment manager . . . shall provide active fixed income liability driven investing (LDI) investment management services for revolving fund and trust fund assets that will . . . provide investment execution services which will hedge either all or a portion of PBGC’s liabilities. The investment execution (or management) services may be provided in multiple mandates . .

Can PBGC elaborate on whether PBGC sees a difference between investment execution and investment management services? Is PBGC seeking an execution only provider who will not provide investment advice to PBGC in connection with this solicitation?

PBGC requires both investment execution and investment advice services under this

Question 25 Section C - Statement of Work - II. Scope of Work – Disaster Recovery, Paragraph 1 (pp.

20-21):

The section referenced immediately above provides that the offeror shall provide a copy of its annual disaster recovery test report to the PBGC within 30 calendar days of the completion of the test. Our firm keeps the results of its annual disaster recovery testing confidential. Is it sufficient to provide an annual high-level summation of our testing results for mission critical functions related to this assignment? If not, what would be your minimum requirements for disaster recovery test results reporting?

A high-level summation of the testing results for mission critical functions is acceptable.

Question 26

The section referenced immediately above requires the offeror to provide to PBGC a copy of its disaster recovery plan and/or any revised plan within 60 calendar days of the completion of the revised plan. Our firm considers its Disaster Recovery Plan to be proprietary and confidential. Is it sufficient to provide an annual high-level summary of the Plan and/or of any revisions?

A high-level summation of the Plan and/or of any revisions is acceptable.

Question 27

The section referenced immediately above requires the offeror to provide to PBGC a copy of the Alternative Site Processing Agreement if the site is operated by an organization other than the offeror. Our firm considers its Alternative Site Processing

Agreements proprietary and confidential information. Is it sufficient to provide an annual high-level summary of the Alternative Site Processing Agreements?

A high-level summary of the Alternative Site Processing Agreements is acceptable.

Question 28 Attachment 5, Section II Product Level Technical Evaluation Questionnaire; Subsection

C, References (Volume IV); pp. 76-77 of this RFP:

Item 1 requires the offeror to identify all clients for each of the LDI investment management services identified in the Mandatory Requirements that have terminated accounts or relationships with the offeror over the past three years. If the offeror cannot provide this information in our efforts to protect our terminated clients’ confidentiality, will that be cause for disqualification from the search? Will a list of sample clients suffice?

To maintain confidentiality, an offeror can use “Client 1, Client 2” etc. or codes and not disclose actual former client names.

Question 29 Section M, Evaluation Factors for Award; Section M.2, Part I, - Phases I-II (pp. 96-97)

• Will offerors be notified if they progress onto Phase II?

Yes, PBGC will review mandatory requirements and notify offerors of their status.

Question 30

We are interested in responding to this RFP, but have a question on one of the minimum requirements shown on the Product Level Mandatory Requirements Table. For Column

B, is there any flexibility with the requirement of managing “LDI portfolios for at least

10 clients for at least 10 years”?

Answer: No.

Question 31 We see that one of the firm level mandatory requirements is that the firm has at least

$100 billion in discretionary AUM. Does this number include the AUM of our parent company? (Name omitted) is a wholly owned subsidiary of (name omitted), which has over $100 billion in 12/31/2016 discretionary AUM as a fiduciary. Would this satisfy the requirement?

On the product level, there is a minimum requirement of $40 billion in AUM of LDI investment management services. Does this number also include the AUM of our parent company? (Name omitted) has over $40 billion in 12/31/2016 LDI AUM. Would this satisfy the requirement?

basis. The Mandatory Requirements are further split into two categories, Firm Level

Mandatory Requirements and Product Level Mandatory Requirements. Each offeror shall meet or exceed all of the Firm Level Mandatory Requirements and all of the are based on US Assets Under Management and US Registered Investment Advisors with which the PBGC will be contracting.