Section C - Draft SOW.pdf

SECTION C – DESCRIPTION/SPECIFICATIONS/STATEMENT OF WORK

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C.1 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.

C.1.1 PURPOSE

The purpose of this requirement is to provide active investment in REIT equities that performs on a risk adjusted basis in excess of a chosen benchmark, currently the FTSE Nareit Equity REITs Index. The portfolios will be 100% long only.

C.1.2 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 REIT 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.

C.2 SCOPE

The scope of this requirement is to procure investment management services for a REIT equity portfolio that is 100% long only. At PBGC's sole discretion, allocations may range from $250-$500 million and may change at any time during the performance of the contract.

C.3 OBJECTIVE

The primary objective of this requirement is to obtain investment managers to manage the Corporation’s investment assets consistent with guidelines specified by the contract.

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.

DRAFT

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C.4 TASKS

C.4.1. ACTIVE INVESTMENT IN REIT EQUITIES

C.4.1.1 The contractor shall demonstrate a repeatable investment process that can deliver strong risk adjusted returns in excess of the benchmark (the FTSE Nareit Equity REITs Index) on a go forward basis.

C.4.1.2 The PBGC continuously reviews and evaluates manager performance and conducts extensive due diligence to ensure satisfaction of performance standards are compliant with investment guidelines.

The contractor shall manage all assets with full discretion in accordance with the policies of PBGC, and the strategy and objectives mutually agreed upon between the investment manager and PBGC.

The contractor shall comply with the Department of Treasury’s Office of Foreign Asset Control regulations.

C.4.1.3 The contractor shall adhere to the investment style for which it was retained, unless mutually agreed upon with PBGC. PBGC shall receive any of the contractor’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.

C.4.1.4 The contractor shall maintain close contact with PBGC’s Corporate Investments Department (CID) and shall serve as a resource for economic, investment information, and research.

C.4.1.5 The contractor shall keep PBGC fully informed of the rationale for investment decisions and changes in the portfolio under its management.

C.4.1.6 The firm shall be registered with the SEC as an investment advisor or have proof of bank exemption and shall have ERISA fiduciary responsibility for the assets under its management. PBGC will delegate its proxy voting authority to the contractor. The contractor shall vote in accordance with ERISA rules and regulations and shall maintain records of its votes and report the results, at least annually, to PBGC.

C.4.1.7 The contractor shall work closely with PBGC’s custodian bank to facilitate the efficient and timely recording of purchases, sales and other activity, reconcile securities and cash balances and provide information necessary to calculate performance results. The contractor shall be responsible for best execution, including foreign exchange.

C.4.1.8 The contractor shall be responsible for notifying PBGC of significant changes in personnel, ownership, resources, or firm direction within 10 business days of any said change.

C.4.2. REQUIRED COMPONENTS OF THE ACTIVE INVESTMENT REIT EQUITIES

C.4.2.1 The contractor shall provide active investment management services.

Components of this service include:

a) A sound investment philosophy and process for active investment in REIT equities that provides rationale for how the fund can outperform the index over the term of the contract.

b) An investment process that is repeatable and utilizes reliable data sources.

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The investment process shall include research resources that support the investment philosophy. Liquidity, country, sector and security constraints shall support the investment philosophy while mitigating unnecessary risk.

c) Portfolio risk monitoring that will reduce the risk of underperformance due to unforeseen portfolio risks.

d) Performance and attribution that reflect the stated goals and investment process that are described.

e) Trading systems and resources that can ensure best execution given the proposed strategy and liquidity in the markets. Pre- and post-trade compliance processes shall reduce the risk of guideline breaches and unauthorized trades.

f) Proxy voting and stewardship efforts that adhere to ERISA and ensure best value for plan participants.

g) Middle/back-office and compliance departments to ensure compliance with regulations and reporting requirements.

h) A client service team to assist with delivering reports and data, meeting requests, and to answer high level questions about the process, team, and firm.

i) A parent firm with the ability to support the ongoing investment in REIT equities, including the ability to continue staffing the product and provide resources necessary for successful outperformance.

j) Maintain sufficient stability and growth of client assets to allow for economies of scale that will allow for continued investment in staff, management, vendor oversight and technology that is necessary to successful contract performance.

C.4.1.10 The contractor shall meet with 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 a minimum, one meeting per year will occur in-person at the investment manager’s offices.

C.4.3. TRANSITION

C.4.3.1 Transition-In

After award of the contract, the contractor shall accept cash or assets in kind to fund the account. Direction letters and other funding documentation shall be signed in accordance with PBGC’s Authorized Signer’s List, which will be provided after contract award.

C.4.3.2 Transition-Out

Before completion of the contract, the contractor shall accept a direction letter or other documentation for the sale or transfer of assets Direction letters and other documentation shall be signed in accordance with PBGC’s Authorized Signer’s List, which will be provided after contract award. Cash shall be wired to PBGC’s custodian before termination of the contract.