Attachment 6 - Questionnaire.doc

Attachment 6

TIB-2015-RFP-0002

TSP C Fund Investment Management Questionnaire

Please provide all quantitative information (such as assets under management, tracking error) as of December 31, 2014 unless otherwise noted. Questionnaire Responses Word limitations, where noted, are provided below This firm meets the following minimum criteria:

1) 15 years managing passive S&P 500 Indexed assets. Yes ___ No___

2) $60 billion of passive S&P 500 and comparable large capitalization index assets under management (includes direct and indirect assets).Yes __No __ *Direct exposure represents assets directly invested in the S&P 500 and comparable large capitalization strategies. Indirect exposure represents portion of assets invested in the S&P 500 Index as part of other strategies such as a US Total Stock Market Index.

3) 10 years of securities lending experience across domestic and international equity and domestic bond portfolios, and managing cash collateral reinvestment vehicles associated with securities lending. Yes___ No ___

Subfactor 1 – Organization, Risk Management, and Compliance

Organization and Ownership Structure

1) (a) What year was the index management division established? Provide a brief history of the index management division. (100 words)

(b) What year did your firm begin managing portfolios indexed to S&P 500 Index? Provide a brief history. (50 words)

2) Complete the following table for your index management offices. State the primary function of staff (i.e. Portfolio Managers, Marketing, and Trading & Operations) and number of staff in each respective index management office. (Add rows as needed)

Index Office (1):

Index Office (2):

3) Which of your firm's offices would service this account? What services would specifically be provided by each office? (100 words)

4) Describe any ownership changes in your firm or subsidiary in the last five (5) years. (100 words)

5) What do you see as your index management division’s competitive advantage or strongest area of expertise? (200 words)

6) What factors make your index management division unique from your competitors? (200 words)

7) Describe the business continuity plan your firm has in place in order to permit it to continue to deliver the services described in this RFP and to preserve all associated electronic and written records in the event of a disaster. Do you run parallel data centers? If not, what is your projected time to fail over to your backup facility? (300 words) Investment Personnel and Compensation

8) Provide a staff organization chart showing functions, positions, and titles of all professionals in your domestic equity index management division.

9) Provide detailed biographies of each of the professionals who will be assigned to the TSP account as an attachment to this questionnaire.

10) Who will be the client service officer assigned to the TSP relationship? How many other customer relationships does this person have? How often would the chief investment officer and/or other senior personnel in the organization (e.g., CEO) be available for client meetings? (100 words)

11) How many clients did the person/team that would be responsible for this relationship take on in each of the past three years? What amount of assets did they represent? (50 words)

12) How many clients did the person/team that would be responsible for this relationship lose in each of the past three years? Why? What amount of assets did they represent? (100 words)

Conflicts of Interest

13) Explain your company’s policies or procedures to address conflicts of interest within your organization. (50 words)

14) Will the firm contractually agree to disclose all potential and actual conflicts of interest, and will it annually disclose all sources of firm revenue and all business relationships and affiliations? If no, provide detail. (50 words)

15) Describe any potential conflicts of interest your firm may have in the management of this account. Include any activities of affiliated or parent organizations, brokerage activities, investment banking activities or any existing or prior arrangements or relationships with any current FRTIB board member. Include any other pertinent activities, actions or relationships not specifically outlined in this question. (150 words)

Compliance/Regulatory Oversight

16) Has your firm, its principals, employees, or affiliates ever:

a) been the focus of a non-routine Securities and Exchange Commission (SEC) inquiry or investigation or a similar inquiry or investigation from any similar federal, state or self-regulatory body or organization,

b) been a party to any litigation concerning fiduciary responsibility or other investment related matters, or

c) submitted a claim to your errors and omissions, fiduciary, liability, and/or fidelity bond insurance carrier(s)?

d) entered into any settlement, consent decree, cease and desist order or other similar agreement of any kind?

If your firm answered yes to any part of this question, please provide details along with materiality. (100 words per incident)

17) In reference to your firm’s SEC Form ADV Part 1 Section 11 Disclosure Reporting Pages (DRP’s), please provide an explanation for any disclosure. (50 words per disclosure)

18) Are you currently or have you been in the last 5 years out of compliance with the SEC, DOL, or any regulatory agencies? If yes, please explain thoroughly.

19) How many professionals are dedicated to the compliance function? Describe its scope. To whom does the Chief Compliance Officer report?

Financials

20) Describe the current/recent financial condition of your firm. (100 words)

21) Have your financial statements ever been qualified by your external auditor? If so please provide full details. (50 words)

22) Has any external auditor ever resigned as auditor of your firm? If so please provide full details. (50 words)

23) Does your firm have an internal audit function? How many professionals are dedicated to the internal audit team? How is the scope of work of the internal audit team determined? To whom does the head of internal audit report? (150 words)

Client Communications

24) Describe any on-line information or reporting capabilities you make available for client use. Can you provide client reports electronically via e-mail as well as hard copy? (50 words)

Subfactor 2 – Index Fund Management, Investment Performance, and Trading Assets Under Management/Performance

25) Assets Under Management ($mm)

Total Assets

Passive US Equity Assets

Direct Passive S&P 500 and comparable indices Assets (provide breakout by index)*

Indirect Passive Assets (provide breakout by index)*

*Direct exposure represents assets directly invested in the indices. Indirect exposure represents portion of assets invested in the indices as part of other strategies, such as the US Total Stock Market Index.

26) Complete the chart below and enter asset values for passive S&P 500 equity investments:

Total

27) Provide the following information regarding passive S&P 500 equity clients (not accounts) gained and/or lost during the past five years.

22010

Total

Total

28) Complete the following table, providing 5 years of MONTHLY returns (gross of securities lending and management fees) for accounts managed to the S&P 500 Index (sample format below) and provide as an attachment to the questionnaire:

Account

Composite

Return Benchmark

Return

Commingled

Fund

Return Difference

12/31/2014

11/30/2014

Yearly

Annualized

1 Year

3 Year

5 Year

29) Provide annual performance attribution:

Security Mis-weights

Trading Costs

Securities Lending

Custody and Admin

Compounding

Management Fees

Cash Drag

Other (identify each component)

30) Provide the number of accounts and the asset size in the separate account composite for the product mandate under this RFP and the inception date of the composite.

31) Provide the following information for investment professionals in your domestic indexing business (analysts, portfolio managers, traders, client service representatives) that have been gained or lost in the last five (5) years.

Total

Total

32) Complete the following tables showing turnover in your domestic index management personnel over the past 3 years.

Total Portfolio

Managers

Total

Hires Total Departures

Total Traders

Total Analysts

Total

Hires Total Departures

33) Complete the following table for domestic index management:

Number of Personnel

Portfolio Managers

Credit Research Analysts

Quantitative Analysts

Economists

Traders

Administration, Operations

Client Service

Marketing, Sales

Other (Specify)

Total

Investment Process

34) Provide a complete overview of your firm’s investment methodology and the decision-making process for the product. Include discussion of the security sampling method or optimization method (if used) employed in portfolio construction. (500 words)

35) How is tracking error managed in this strategy? (200 words)

36) What tools are used in this strategy with respect to both portfolio and risk management? (200 words)

37) Are derivatives used in the management of this strategy? If so, please discuss how they are used and incorporated into the strategy. (150 words)

38) Describe the structure and organization of your research department. (200 words)

39) Have there been any changes in the product’s investment process over the past 5 years? If yes, describe. (200 words).

40) What distinguishes your firm from other investment managers with respect to this product? (200 words)

Liquidity/Transaction Cost Management

41) What size liquidity pool would you maintain to manage TSP redemptions? How did you determine the size? Do you equitize the cash, and if so, how? Refer to the chart below and attachment 5 in Section J of the RFP. (200 words)

Average Daily

Market Value Daily Trade Amounts

(Mean Absolute Value)

42) How would you handle excess redemptions if the liquidity pool were exhausted? (100 words)

43) Describe your firm’s approach to managing equity transaction costs (300 words)

Trading

44) Describe the firm’s approach to equity trading and capabilities as they relate to:

(a) the product and

(b) derivatives. (250 words)

45) Provide a description of your equity trading platform, including systems (proprietary and off-the-shelf) for execution and processing. (350 words)

46) Describe the pre- and post-trade controls and review procedures. How are pre- and post-trade violations addressed? (200 words)

47) Describe the allocation objectives and implementation procedures across all accounts. What is the process by which trades are allocated across separate accounts as opposed to commingled accounts? (100 words)

48) Is trading segmented by investment product platforms? For example, are there dedicated traders for domestic equity securities? For derivatives? (200 words)

49) How many traders are dedicated to domestic equity trading? Describe their experience and tenure at the firm as well as the sector(s) they are responsible for trading.

Make sure to provide biographical information of your senior equity trading personnel in an attachment.

50) How does your firm manage to and monitor market liquidity? (100 words)

Subfactor 3 - Securities Lending Lending Philosophy, Approach and Experience

51) Describe your lending philosophy and how you are able to negotiate the most favorable rates on loans for clients. Provide details on differentiating factors of your program. (350 words)

52) Attach to this questionnaire the most recent benchmark report from a third party service (e.g., MarkIt) that demonstrates your firm’s market share in lending domestic equity (or domestic small and mid-cap) securities.

53) Describe your strengths in domestic equity lending. (200 words)

54) Does your organization have Internet based/electronic lending capability? If so, describe – including inception, extent of applications, competitive bidding process, volume and percent of loans executed through this process, etc.

55) Please describe any changes that have been made to your securities lending program in the past 5 years.

56) Please provide your firm’s lendable base, utilization rate, gross spreads, intrinsic spread, reinvestment income:

Lendable base

($ in mm) Average

Utilization Rate (%) Gross Spread

(in bps)

(in bps)

Total

57) Describe your allocation or queuing process and relevant entitlement methodology. (200 words)

58) When, why and how does your firm intervene in the allocation or queuing process? Please describe. (100 words)

59) What is your procedure on re-rating securities? (100 words)

60) What changes do you anticipate in the Securities Finance industry in the near future and what is your firm doing to prepare for these changes? (400 words)

Risk Management and Indemnification

61) FRTIB requests full operational and borrower default indemnification within the securities lending program. Is your organization able to comply with this requirement? Describe your full operational and borrower default indemnification policy. Be sure to address the following:

· Borrower files for bankruptcy for whatever reason.

· Failure to recall securities before settlement date.

· Failure to secure additional collateral and margin requirements.

· Failure to receive dividends, distributions, and all economic benefits of ownership.

· Immediate use of Non-Cash Collateral in lieu of Borrower Bankruptcy.

62) Does your firm provide additional types of indemnification beyond broker default (e.g. collateral, negligence, trade settlement)? If so, can your firm provide FRTIB with these additional levels of indemnification? Describe. (100 words)

63) How does your firm manage the following risks? (100 words each)

a) Collateral Investment Risk

b) Interest Rate Risk

c) Credit Spread Risk

d) Liquidity Risk

e) Trade Settlement Risk

f) Operational Negligence

64) Has your organization experienced any losses due to operational negligence or broker default since the inception of your securities lending program? Describe. What was the recourse provided to clients and the level of dialogue to explain (resolve) the issues?

65) How does your organization conduct asset/liability (gap) analysis, specifically the duration of the loan and cash investments? (150 words)

66) Does your firm stress test your securities lending program (collateral and borrowers)? Describe the methodology and procedures utilized for stress testing, including the frequency of testing. (200 words)

67) What additional safeguards are offered by your firm to its lending participants? (200 words)

Organization and Team

68) Submit a breakdown of persons dedicated to providing securities lending services for each of the following categories: (Do not double-count)

Number of Personnel

Lending/Trading

Operations

Credit analysis

Risk management

Compliance/Legal

Non-Cash Collateral Management

Cash Reinvestment

Trading

Currency Management

Marketing/Client Servicing

Others (provide category)

Total

69) Provide a five-year personnel turnover for the following categories for Securities Lending.

Lending

Operations

Credit analysis

Risk management

Compliance/Legal

Non-Cash

Collateral Management

Cash Reinvestment

Trading

Currency Management

Marketing/Client Servicing

Other(provide category)

TOTAL

70) Is there any pending litigation with respect to the securities lending program? Please state whether cases have been filed, whether they are class actions, identify the plaintiffs making the complaints, whether the impact is estimated to be material, and provide, if possible, a summary of the claim or a copy of the complaint. Is any breach of fiduciary duty involved?

Borrower/Credit Analysis

71) How often are borrower creditworthiness and credit limits (for borrowers and issuers) reviewed? (100 words)

72) How are credit limits (for borrowers and issuers) awarded and who is responsible for monitoring credit limits both across the various business units as well as within the securities lending group. How often do these change? (300 words)

73) With how many borrowers (parent companies) do you have relationships? How are these borrowers selected? (150 words)

74) Has there been an instance where a borrower was terminated within the last 5 years? If so, provide details. (200 words)

75) Does your organization have compensation arrangements with borrowers beyond the normal form of negotiating rebates/fees? (50 words)

76) What collateralization percentage is required? (50 words)

77) How frequently does your firm mark to market the collateral? When is additional collateral called (same day, next day)? (50 words)

78) How far below the required collateralization percentage must the collateral dip before a margin call is made? (50 words)

79) Is the mark to market process done by individual loan or security or in aggregate? Please describe the process. (100 words)

Cash Collateral Management

80) Most of the TSP’s securities lending collateral is invested in the TSP G Fund. The G Fund invests exclusively in a nonmarketable short-term U.S. Treasury security that is specially issued to the TSP. The earnings consist entirely of interest income on the security. The G Fund interest rate calculation is based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. The G Fund does not provide daily liquidity, but instead settles on T+1. Please describe how you would manage the cash flows associated with routine securities lending activities on a daily basis.

81) How much money was lost in collateral pools? Did any of your clients incur losses during the financial crisis? Explain. Did your firm reimburse clients? Explain.

82) Clearly state the gating and redemption procedures your firm instituted, enhanced, or codified regarding client’s rights regarding securities lending exit or withdrawal from the program. (200 words)

83) Did any of your organization’s collateral reinvestment or sweep vehicles suffer losses where the NAV fell below $1.00 in the past five years? If so, were any capital support programs offered by your organization? Please provide the NAVs for your short term cash and sweep vehicles for any month they were below $1.00, since January 2008.

84) Does your organization have cash collateral pools dedicated to securities lending that conform to a registered 2a-7 fund structure? Does your organization have a fund that is invested 100% in overnight securities? Please describe. (100 words)

Reporting

85) Describe the level of detail that is available in reporting (e.g., trade, sector, country). (100 words)

86) Describe your firm's income source attribution analysis reporting capability. Can this be customized? (100 words)

87) How do you benchmark the performance of your small to mid-cap lending program and do you provide that information to your clients? Show your results for 2013 and 2014 and compare to data published by the RMA.

88) Is your firm able to provide internet access to information about your securities lending program, including loans outstanding, shares on loan, days out on loan, term or open trades, borrowers for each block of securities lent, collateral portfolio details, collateralization levels, earnings, and other weekly and monthly reporting requirements? (200 words)

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