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HomeMy WebLinkAbout96.Money Manager Selection Process Update.pdf FI a ORANGE COUNTY SANITATION DISTRf � HK OFQ:Flce OF Memorandum m A oee91a r �L 21) 1014 DATE: July 23, 2014 TO: Board of Directors James D. Herberg,General Manager FROM: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: Money Manager Selection Process Update Earlier this year, the Board gave staff approval to begin the selection process for the District's investment manager. To assist in this process,we have engaged the firm of Callan Associates. Callan's standard search process uses a proprietary investment manager database of over 2,200 firms to identify qualified candidates. The database is very robust and includes nearly every institutionally viable investment manager and their products. This database serves as the starting point for manager searches and would result in a more robust candidate list than a RFP process. We have also included qualified investment management firms currently register with OCSD. The District has an existing contract with Callan to provide financial advisory services. Callan also has experience helping clients evaluate managers through a RFP process and provided this service during the District's last selection process. Callan will not be eligible to become one of the candidates. Based on Callan's knowledge of the firms, the firms' interest and availability, and alignment with our candidate profile (see attached), a short list of candidates for consideration will be selected and interviewed. Staff will provide a recommendation to the Administration Committee in September. If you have any questions or concerns, please feel free to contact me. Orange County Sanitation District Callan U.S. 1-5 Year GovernmentlCredit& Short Term Money Market Candidate Profile June 2014 Manager Orientation: The Orange County Sanitation District ("OCSD") is seeking one manager to run two strategies: a "Long Term Operating Fund" benchmarked to the Merrill Lynch 1-5 year Government/Corporate index and a "Liquid Operating Money' portfolio investing in cash and cash like securities. Manager Type: Only qualified investment counselors or organizations registered under the Investment Advisors Act of 1940 will be considered. This includes investment counselors and investment counseling subsidiaries of banks, brokerage houses and insurance companies. The prospective manager shall be deemed a fiduciary by OCSD with respect to services rendered. Investment Vehicle: Separate Account Investment Style: Candidate fines should have expertise in managing portfolios in short duration U.S. fixed income. The benchmark will be the Merrill Lynch 1-5 year Government/Corporate Index for the Long Tenn Operating Fund and the Citigroup 3-month Treasury Bill for the Liquid Operating Money. The proposed portfolio will have risk and return characteristics similar to the benchmark. Each portfolio will be governed by the investment guidelines in OCSD's investment policy statement. In-house Research In-house research capability is preferred although limited outsourcing is Capability: acceptable. Track Record: Candidate firms must have a minimum five-year track record in subject product. Assets Under Firms must have a minimum of $3 billion under management in fixed income Management: assets and at least $1.5 billion in the strategies considered, including separate accounts, commingled funds and mutual funds. Size of Professional Firm must have a minimum of three investment professionals dedicated to the Staff: management of fixed income portfolios. Years Experience in It is essential that candidates exhibit organizational stability and have Managing: compensation and ownership programs that provide reasonable assurance of their ability to retain key investment professionals. Key members of the team should have been managing portfolios in this style for at least five years and have at least three years tenure at the candidate firm. Experience gained at another fine is permissible as long as the track record is directly attributable to the investment team. Geographic Location: No restrictions. Page 1 of 3 Callan Orange County Sanitation District U.S. 1-5 Year GovernmentlCredit& Short Term Money Market Candidate Profile June 2014 Involvement with Each case will be judged on Its individual merits, but obvious conflicts of other businesses: interest must be avoided. The organization must have a focus on investment management. Full disclosure of any other business is required. Historic Performance Historical performance criteria will be scored based on the following: Criteria: Long-Term Operating Fund • Cumulative 4, 5, and 7 year data relative to the Merrill Lynch 1-5 GovemmenUCorporate index and the Callan Defensive Fixed Income Style Group. • Rolling three-year periods based on quarterly data compared to the Merrill Lynch 1-5 Government/Corporate index and the Callan Defensive Fixed Income Style Group. Liquid Operating Money • Cumulative 4, 5, and 7 year data relative to the Citigroup 3-month Treasury Bill index and the Callan Money Market Funds Database Group. • Rolling three-year periods based on quarterly data compared to the Citigroup 3-month Treasury Bill index and the Callan Money Market Funds Database Group. Performance will be evaluated relative to each criterion for each period. There will be a maximum of 40 data points possible (17 rolling three-year periods and 3 other cumulative periods and two benchmarks for each period). Risk: Returns generated by the portfolio will be evaluated in light of the portfolio risk. Risk will be evaluated relative to the benchmark and peer group through quantriative measures such as Sharpe Ratio, Information Ratio, Standard Deviation, Tracking Error, Correlation, and R-Squared. Page 2 of 3 Orange County Sanitation District Callan U.S. 1-5 Year GovernmentlCredit& Short Temr Money Market Candidate Profile June 2014 Qualities specifically Positive risk-adjusted returns sought: Low turnover of personnel Well diversified portfolios Attentive, investment-knowledgeable client service personnel Ability to build, implement, and monitor a portfolio within client guidelines Qualities to be Firms with current negative publicity avoided: Significant performance attributable to short periods of excess return Excessive recent growth in assets Concentrated portfolio structures Investment Mgmt Should be competitive. Fees: Client Request: OCSD has asked that PIMCO be considered in this search. PREPARED JUNE 18,2014 GORDON WEIGHTMAN Page 3 of 3