Statement_of_Work_(SOW) PMIMS - Draft.pdf

Private Markets Investment Monitoring Services

Statement of Work

2.1 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 $60 billion as of December 31, 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 $69 billion) receives assets from terminated plans and is the source of funds related to this contract.

Certain terminated and trusteed single employer plans held Private Markets assets which PBGC commingled. Through commingling, PBGC's private markets portfolio is presently split into three distinct pools:

1. PBGC-Only: The first pool is comprised of limited partnerships that are wholly owned by the PBGC, that is, the PBGC is the statutory trustee of a series of pension plans trusteed by the PBGC in which the PBGC owns each position entirely versus being an investor in a master trust with other third parties. There are 40 limited partnerships as of December 31, 2024, through 29 General Partner (GP) relationships. The aggregate capital commitment is $310 million, and the partnerships are approximately 96% funded. Most partnerships are older vintages (the average age of the 40 LPs when weighted by remaining market value is 16 years) ranging from 1986 to 2016, with the bulk of partnerships in the

DRAFT

2000 to 2006 vintages) and are in their liquidation phase. Current valuation is approximately $26.8 million.

2. Commingled Master Trust One: This second pool is comprised of limited partnerships that are commingled in a master trust vehicle of a former plan sponsor. More specifically, the former plan sponsor commingled multiple pension plans into a single master trust and made investments on behalf of all the pension plans in the trust. PBGC trusteed only one of the pension plans commingled in this master trust and as such, PBGC owns a minority interest (at the trust level) of each limited partnership at the time of trusteeship. Therefore, GPs formally recognize the master trust as the investor but are aware that the PBGC has a minority interest in the master trust. The former plan sponsor has its own Private Markets advisor and the Contractor’s oversight of Commingled Master Trust One. This pool has 9 limited partnerships and 9 GP relationships as of December 31, 2024. The aggregate capital commitment applicable to the PBGC is approximately $60 million and these partnerships are 99% funded. Most partnerships are older vintages (the average age of the 9 LPs when weighted by remaining AUM is 26 years) ranging from 1997 to 2006 and are well into their liquidation phases. The adjusted valuation is approximately $16.0 million as of December 31, 2024 and is quite concentrated, with a single timber fund making up 79% of the adjusted valuation.

3. Commingled Master Trust Two: This third pool is similar to Commingled Master Trust One. Commingled Master Trust Two is comprised of primarily limited partnerships that are commingled in a master trust vehicle of which the former plan sponsor was an investor. More specifically, the former plan sponsor and certain other third-party plan sponsors commingled multiple pension plans into a single master trust and made investments on behalf of all the pension plans in the trust. PBGC trusteed two of the plans commingled in this master trust and as such, PBGC owns an interest of each limited partnership at the time of trusteeship. The PBGC’s interest in each limited partnership varies deal-by-deal, but PBGC has a minority interest (at the trust level) in most limited partnerships in this pool. In addition to private equity partnerships, this pool also includes private debt and private real estate (both in a fund structure and direct real estate). The former plan sponsor has its own Private Markets advisor and the Contractor’s oversight of Commingled Master Trust Two and as such is not currently assigned to the Contractor as part of the scope of this mandate. If Commingled Master Trust Two is to assigned to the Contractor for oversight, would require collaboration with this separate firm. This pool has approximately 180 limited partnerships with approximately 98 different GPs as of December 31, 2024. The aggregate capital commitment applicable to the PBGC is approximately $1.5 billion and these partnerships are approximately 96% funded. Most partnerships are older vintages (ranging from 1986 to 2009, with the crux of partnerships in the 2000 to 2009 vintages) and are in their liquidation phase. Current valuation is approximately $117 million.

Given the nature of the PBGC's business, the number of limited partnerships could grow over time. Further, it is possible that PBGC may enter into additional commingled master trust relationships. PBGC will provide the Contractor with reasonable advance notice of the addition of any assets to the scope of this mandate.

2.1.1 PURPOSE

The Board approved Investment Policy Statement (IPS) states, “Inherited private market assets shall not be included in asset allocation targets and shall be managed prudently for the benefit of PBGC.” The purpose of this requirement is to recognize that the PBGC does not control the amount of private market assets that is inherited and that it should not drive shifts in asset allocation. This requirement also requires prudent management of the inherited private market assets assigned to the contractor, which is the purpose of this contract.

2.1.2 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). Effective oversight of the inherited private market assets can maximize the size of the distributions received from the individual Limited Partnership positions. Working with a capable private asset investment monitor helps the PBGC maximize the return on its assets by maximizing distributions and minimizing expenses. This helps the PBGC pay pension benefits and keep pension insurance premiums to a minimum.

2.2 SCOPE

The investment management organization retained under contract by PBGC is responsible for monitoring inherited private asset LP positions. LP asset values may vary widely in the future depending on whether future terminated pension plans have large allocations to Private Assets. The commingling of new Private Market partnerships is episodic, and experience has shown that commingling one large plan can quickly increase the size of the PBGC Only pool by multiples or result in the addition of another Commingled Master Trust.

2.3 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 U.S. Department of Treasury, Office of Foreign Asset Control (OFAC) regulations.

The investment manager shall adhere to the fiduciary duties set forth in Section 404(a) of ERISA with respect to 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.

2.4 TASKS

2.4.1 TRANSITION PBGC PRIVATE MARKETS HOLDINGS

2.4.1.1 Within sixty (60) calendar days of contract award, load all historical LP data (e.g.

asset valuations, capital flows, commitments, called capital), collect all necessary documents (i.e. Limited Partnership Agreements, Amendments, other GP reporting) and make all other necessary preparations (e.g. execute a Fidelity Bond and Errors and Omissions Professional Liability Bond, establish Disaster Recovery Procedures, etc.) to oversee the assigned Private Markets assets in accordance with this Statement of Work

(SOW). Until PBGC directs the Contractor otherwise in writing, the Contractor is not permitted to charge a fee for Private Markets Monitoring Services until the transition is complete.

2.4.2 PRIVATE MARKETS INVESTMENT MONITORING SERVICES

2.4.2.1 Provide Private Markets Monitoring Services (which encompasses all the below requirements) for the PBGC-Only and Commingled Master Trust One portfolios.

Commingled Master Trust Two and/or any new Private Markets partnerships (including those commingled in a manner similar to Commingled Master Trust One and Two) may be assigned to the Contractor for Private Markets Monitoring Services.

The Private Markets portfolio will primarily be comprised of limited partnerships, to include buyouts, venture capital, real estate (including direct real estate), debt (mezzanine and distressed), fund of funds, oil and gas, timberland, and other investments in a limited partnership (or similar) structure.

The Contractor shall act as a fiduciary under this contract.

2.4.2.2 Assist in reviewing and making recommendations such as proposed partnership amendments, proxies, and waivers; or other proposed modifications with consideration given to PBGC’s Investment Policy Statement and liquidity needs;

2.4.2.3 Assist in gathering, retaining and reviewing limited partnership documents from GPs and/or their representatives, such as performance reports; audited and unaudited financial statements; limited partnership agreements; amendments; capital account statements; annual reports and other related materials which describe each of the limited partnerships' investment activities and overall performance of their respective investments;

2.4.2.4 Assist in the processing of capital calls and distributions and monitoring of capital commitments;

i. Prepare direction letters/directives for PBGC’s signature to appropriately direct capital calls, fees, and cash and stock distributions. Such direction letter shall be provided to PBGC in final form with back-up documentation (i.e. capital call/management fee notice from the GP, fee calculations, etc.) no less than 48 hours before their due date with a copy of each bank instruction letter sent to PBGC's Investment Accounting Branch (IAB).

ii. Request wire instruction letters from GPs and verify new and/or revised wire instruction details with GPs.

2.4.2.5 Attend general partner client meetings, conference calls, board meetings, and other meetings (as applicable and dependent on the relative size of the GP relationship) as well as periodically communicating with GPs and such other parties as the Contractor deems reasonably necessary to enable the Contractor to understand and to evaluate each limited partnership's investment strategy, activities, current performance and prospects.

2.4.2.6 Interface with the GPs on PBGC’s behalf on various matters (e.g., to address a question that the PBGC staff may have on a particular capital call, fee, amendment, holding, assist in gaining access for PBGC staff to attend certain annual general partner meetings, etc.)

2.4.2.7 Prepare risk and performance reporting services (monthly and quarterly and reporting);

i. Monthly reporting is due by 7 business days following month end and shall consist of separate reports for each assigned private markets portfolio (i.e. PBGC-Only, Commingled Master Trust One and Commingled Master Trust Two, if assigned). Monthly reports include:

1. Value of the unrealized portfolios.

2. A cash flow summary showing flows to and from the PBGC for month to date, quarter to date, year to date and fiscal year to date.

3. A report showing the investment name, closing date, percent owned, local fund size, local commitment, base fund size (US Dollar), and base commitment (US Dollar).

4. A report showing unfunded commitments including investment name, currency, commitment, contributions, recallable amounts, uncounted funding (e.g. fees), net capital contributed (excluding uncounted funding), unfunded amount, and percent funded.

5. A report showing a transaction summary including the investment name, the transaction date, capital call, additional fees, cash (in the case of distributions), stock (in the case of distributions), and the net cash flow.

6. A report showing the adjusted ending value including investment name, currency, commitment, paid in capital, additional fees, cash distribution, stock distribution, total distributions, valuation date, valuation, adjustments (i.e., cash flows since the most recent valuation), and adjusted valuation (the valuation adjusted for cash flows), internal rate of return and Multiple of Invested Capital (MOIC).

7. A distribution performance report showing performance of the distributed stocks by year including the year, aggregate realized performance, realized performance for those holdings listed as a sell, realized performance for those holdings listed as a hold, and the Russell 2000 Growth performance or another reasonable benchmark. There will also be the same statistics for the since inception time period. Additionally, there should be an aggregate return for unrealized holdings as well as returns for those listed as a sell and those listed as a hold.

Further, there should be a summary report showing distributions received since inception, distributions sold since inception, average holding period and current holdings. There should be a specific holding report for those securities still held including the name of the broker dealer holding the security (i.e. a distribution agent), the security name, the ticker, current shares held, original shares, distribution price, distribution value, current price, current market value, % of current portfolio, and unrealized gain/loss.

Lastly, there should be a transaction report for securities sold as well as securities added showing the distribution date, the company name, the ticker, LP fund, quantity sold, total shares, GP cost per share, distribution price per share, currency, GP cost, distribution value, and in the case of sold shares, sales price per share, gross sale proceeds, commission and fees, net sales proceeds, and realized gain/loss. Note - performance should be shown versus the distributed value.

8. A report describing any proxies voted.

9. A report showing a breakdown by investment type including, category (i.e.

buyouts, distressed, mezzanine, venture capital, etc.), and the aggregate number of investments, committed capital, funded amount, unfunded amount, distributions received, and latest market value for each category.

10. A report showing geographic focus including region, number of investments, latest market value and percentage of portfolio.

11. A report showing performance including the portfolio (i.e., PBGC-Only and Commingled Master Trust One), beginning of period market value, period cash flows, end of period market value, gain/loss, and period gain/loss percentage. This report will show performance by each of the portfolios as well as in aggregate.

12. Other data and information as requested.

ii. Report and track PBGC's contributions and commitments as well as any distributions that PBGC may receive.

iii. Reconcile monthly reporting with custodians, by helping the custodians to properly record valuations, cash flows, transactions, holdings, etc. by business day four (4) following month end;

iv. Send monthly cost and market value reports to PBGC's custodian and IAB for all assigned portfolios by business day seven (7) following month end.

v. Provide sufficient support, primarily reporting, to enable the PBGC to meet its annual report requirements;

vi. Provide certain underlying data per investment (e.g. vintage year, net asset value, capital commitment, unfunded amount, investment type) in a CSV format that permits transmission to PBGC’s investment risk management system by business day seven (7) following month end.

vii. Assist in transitioning the reporting of certain private market assets from previous plan sponsor to the Contractor and PBGC’s custodian for terminations and trusteeships of future plans;

viii. Provide all general partner communications (e.g., annual reports, quarterly reports, capital account statements, audited financial statements) in an electronic format to the PBGC on a quarterly basis by ninety (90) calendar days subsequent to a quarter end, as requested.

ix. The Contractor shall provide additional reports as needed as related to the portfolios assigned to the Contractor for oversight.

2.4.2.8 Meet with PBGC staff, both in Washington DC and at the Contractor’s offices for operational, investment and performance due diligence meetings. Generally, there will be two due diligence meetings each year, one at PBGC (via Teams/Zoom) and one at the Contractor’s offices.

2.4.3 DISTRIBUTED STOCK MANAGEMENT

2.4.3.1 Assist in the commingling and liquidation of distributed stock as well as holding and performance level reporting, as discussed above.

2.4.3.2 Manage shares of stock distributed from the GPs and liquidate these distributions on a timely basis in a manner that maximizes the value of the stock relative to the stock distribution value received at distribution.

2.4.4 INSURANCE REQUIREMENTS

2.4.4.1 The contractor shall provide proof of ERISA required insurance coverage and SEC-required (17g-1) insurance coverage immediately after acquisition and annually thereafter.

2.4.4.2 The contractor shall have, or acquire within 6 months of contract award, fidelity bond coverage in the minimum amount of $10,000,000.00 with a maximum deductible of $1,000,000.00 or a roughly equivalent amount in local currency. The policy shall cover, at a minimum, losses due to dishonest or fraudulent acts as well as theft by the contractor. Proof of the existence of such fidelity bond coverage shall be provided to PBGC immediately upon its acquisition and annually thereafter.

2.4.4.3 The contractor shall have, or acquire within 6 months of contract award, errors and omissions coverage in the minimum amount of $10,000,000.00 with a maximum deductible of $1,000,000.00 per claim or a roughly equivalent amount in local currency.

The policy shall cover, at a minimum, losses caused by errors, omissions, or negligent acts of the contractor. Proof of the existence of such errors and omissions coverage shall be provided to PBGC immediately upon its acquisition and annually thereafter.

2.4.4.4 The contractor shall have, or acquire within 6 months of contract award, Cyber and Technology Products and Services Liability insurance with limits of not less than $5,000,000.00 for each wrongful act. Proof of the existence of such coverage shall be provided to PBGC immediately upon its acquisition and annually thereafter.

2.4.5 DISASTER RECOVERY PLAN

2.4.5.1 The Offeror shall have and maintain a disaster recovery plan, which includes critical business operations, computer systems, and telecommunications. The plan shall be tested and/or updated annually. The Offeror shall provide a copy, or summary thereof, of the annual test results to the PBGC within 30 calendar days of the completion of the test. If the plan is revised, a copy, or summary thereof, of the revised plan shall be provided to PBGC within 60 calendar days of revision.

2.4.5.2 Test the plan at least annually and update when necessary.

2.4.5.3 Provide a copy of the annual test report to the PBGC within 30 calendar days of the completion of the test.

2.4.5.4 Provide a copy of the current and/or revised plan to the PBGC within 60 calendar days of the completion of the test.

2.4.6 CORPORATE CONTROLS

2.4.6.1 On an annual basis, the Contractor shall provide PBGC evidence of a fidelity bond and errors and omissions professional liability coverage, current Form ADV Parts I and II and an SSAE 18 report (or similar report). The Contractor shall provide quarterly SSAE 18 bridge letters. If not covered by the SSAE 18 report (or similar report), the Contractor shall describe its internal controls to prevent recurring draws on the fidelity bond and errors and omissions professional liability coverage.

2.4.6.2 The Contractor shall establish and manage internal controls and procedures for validating and tracking capital draws, funding commitments, partnership management fees, distributions, and amendments.

2.4.6.3 Provide internal/external auditors limited partnership data, as requested.

2.4.7 OTHER REQUIREMENTS

2.4.7.1 Provide training, education, and materials to PBGC staff related to private market assets, including, but not limited to seminars and attendance at Contractor client-wide meetings.

i. As a result of this contract, and at no additional cost, PBGC shall receive and have access certain of the Offeror's internal or external investment, market and economic research training materials and support capabilities and services in the performance of PBGC's investment responsibilities, subject to the Contractor’s internal confidentiality rules. These materials and services do not include proprietary models or information unique to the Offeror's investment process. Also, as a result of this contract, PBGC, at its discretion, may utilize other investment advisory services offered by the Offeror that are customarily offered to the Offeror’s clients at no additional cost.

ii. As a result of this contract, and at no additional cost to the Government, the offeror shall provide up to six slots in any educational conferences it may offer to clients as part of the normal contract cost. This would include the cost of related meals offered as well as education materials provided to all participants as part of the formal conference program.

Non-training or non-educational activities offered at the conference including, but not limited to, golf, fishing, tours, entertainment, etc., shall not be included, as PBGC can neither pay for nor may individual employees accept these items in these circumstances.

PBGC will pay for its own travel, lodging, per diem, and other subsistence expenses (e.g., if meals are not offered to all attendees as part of the conference) for attendees at such conferences. PBGC will advise the Offeror of its acceptance or declination of such slots offered at educational conferences.

2.4.8 CONSULTING SERVICES

2.4.8.1 As PBGC’s request, provide guidance with respect to possible sale or transfer of illiquid assets within the portfolio covered by scope of this mandate, including using reasonable best efforts to engage an agent on behalf of PBGC to evaluate secondary market opportunities;

i.