Suppose there was an RFP, but no mandate?

LIVERPOOL, England —The Universities Superannuation Scheme soon will choose a winner in its competition for a long-term, socially responsible manager, but some large international managers already are underwhelmed by the prize.

The £20 billion USS, Liverpool, next month will announce the results of the competition seeking proposals to run a hypothetical €30 billion ($34.5 billion) mandate. The RFP is unusual not only because it is hypothetical, but also because it asks money managers to design a long-term portfolio that is managed in a socially responsible way.

A few large international money managers said they were teased by the RFP and are now disappointed to learn there is no actual pool of money to be won. Others said they declined to participate once they realized there would be no real mandate.

The competition was backed by well-known international pension plans including Ontario Teacher's Pension Plan, Toronto; PGGM, Zeist, Netherlands; and the New York City Employees Retirement System, New York; as well as consultant Hewitt Bacon & Woodrow, London.

The RFP always was intended as a hypothetical exercise designed to encourage trustees, plan sponsors, investment managers and consultants to come to grips with managing long-term investment mandates in a sustainable way, says Raj Thamotheram, senior adviser on sustainable investment to USS and one of the key people driving the project.

He maintains it was always made clear that there was no actual money involved and said no consortium exists to give mandates to managers. "But we hope (this competition) will influence mainstream mandates,' he added.

At first glance the RFP, issued in March, certainly leaves room for ambiguity.

The RFP starts:

"In response to the on-going bear market, an international consortium of major pension funds has decided to create a fresh mandate worth up to €30 billion. This mandate, which has been created by each of the funds allocating less than 5% of their individual assets, will be awarded to teams who can convince the consortium that they will operate in a genuinely long-term and genuinely responsible manner."

But flip through to the final paragraph and the real prizes are revealed:

"The winning corporate entry will receive a plaque from Universities Superannuation Scheme Ltd. and Hewitt, Bacon & Woodrow, London. The winning individual/non-corporate entry will receive a prize of €15,000 from STW Fixed Income Management."

Not much of a substitute for a €30 billion mandate.

Marketers at a number of U.K.-based money managers said the fact that there was no money to manage meant they did not participate. They agreed the USS had its heart in the right place but said the cold demands of commerce prevented them from giving time to what was a largely theoretical exercise.

"We didn't participate because we wanted to talk to our clients directly about these issues. We are extremely interested in the outcome of the competition," said Karl Sternberg, chief investment officer at Deutsche Asset Management, London.

But leading U.S. money managers based in London said they participated partly for the kudos, but also because they expect to see increased interest among European clients for long-term, sustainable investment mandates.

Oliver Bolitho, head of institutional business development for the United Kingdom and Ireland at Goldman Sachs Asset Management, London, said the firm used its submission to the competition "to galvanize our thoughts internally" on the potential for restructuring investment models in the U.K. pension industry.

Earlier this year, Watson Wyatt Worldwide, Reigate, England, proposed to U.K. pension plans that they consider investing 10% to 15% of total assets in mandates where the manager is given a 10-year management tenure.

So far, the firm has created eight such mandates — worth a total of €100 million— for U.K. clients, according to Roger Urwin, global head of investment consulting at Watson Wyatt. He would not be more specific.

But WWW did not submit a proposal to the USS competition because it was already consulting on these issues to its clients and because the contest was not designed for entries from consultants, he added.

The RFP has generated 88 responses, which have been whittled down to a short list of eight, said Mr. Thamotheram. Winning entries will be announced in October.

Judges include Farida Khambata, vice president for portfolio and risk management at the International Finance Corp., Washington; Lyn Hutton, chief investment officer of Commonfund, Wilton, Conn.; and Michael Musuraca, trustee to NYCERS.

Just less than half of the responses came from money managers, says Hewitt Bacon & Woodrow's Mr. Fitzpatrick. The balance was from academics, consultants and individual money managers replying as individuals. The overall response to the RFP was high, but he said he had expected to see a greater response from money managers.

Mr. Fitzpatrick said the entrants' names and companies had been taken out before the judges saw them.