HomeMy WebLinkAbout96.Money Manager Selection Process Update.pdf FI
a ORANGE COUNTY SANITATION DISTRf � HK OFQ:Flce OF
Memorandum m A oee91a r
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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.
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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.
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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
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