Public pension funds' hunt for money managers is moving toward a streamlined search process and away from the traditional RFP, a shift driven by investment consultants.
Instead of requests for proposals, plan executives call on their consultants to mine their databases of investment managers to put together a comprehensive list of managers that would fit criteria for a portfolio assignment, and then narrow the field to a small group of finalists.
Consulting firms are driving a retooling of the conventional RFP process for public plans to make it more efficient and effective, adapting an approach corporate pension plans typically already use.
Consultants say the streamlined approach has appeal because it:
- saves plan executives time and resources;
- provides better field of candidates;
- addresses a squeeze on money manager resources for marketing, including responding to RFPs;
- takes better advantage of high-tech database and analytical tools; and
- improves accuracy of information, while helping to avoid technical eliminations.
Corporate pension plans, which typically don't issue RFPs, have long searched for managers by putting together their own shortlists with the assistance of an investment consultant, said Carl Hess, global head of investment consulting at Towers Watson Investment Services Inc., New York.
“I'm unconvinced of the value” of RFPs in producing a list of capable managers, Mr. Hess said.
Consultants are bringing that streamlined approach to public plans to the extent it doesn't conflict with statutory contract bidding requirements.
The City of Milwaukee Employes' Retirement System is s pioneer in using a process for seeking money managers that other public funds are adopting.
The $4.3 billion pension fund does not issue RFPs, said Thomas Rick, chief investment officer. Instead CMERS relies on Callan Associates Inc., the pension fund's investment consultant.
“We want them to use their database to search for the best managers,” Mr. Rick said. “They're doing (extensive) research on managers. It makes sense (to have Callan screen managers from its database) instead of having managers submit to RFPs.”
In a recent search for a global growth equity manager, Callan came up with a long list — narrowed by officials of the pension fund and the consulting firm — before CMERS selected MFS Investment Management, to run a $210 million portfolio, Mr. Rick said.
In searches for the Milwaukee fund, Callan typically has produced lists of 100 to 200 managers, a field narrowed eventually to a set of three to five finalists for the pension fund's board to consider, Mr. Rick said.
CMERS reaches out to managers, advising them to complete an online questionnaire on Callan's website to be considered for inclusion in searches, he said.
Unlike many public funds, CMERS is exempt from public procurement requirements, enabling it to streamline its search process, an approach it has used since the 1990s, Mr. Rick said.
Last April, the New York City Retirement Systems began a pilot search process using databases of multiple investment consulting firms to identify managers for an active MSCI EAFE portfolio instead of issuing an RFP and limiting the field to managers that respond.
Last March, the $11.2 billion Los Angeles City Employees' Retirement System adopted a search process that doesn't require an RFP. Instead, when a search is needed, Wilshire Associates Inc., LACERS' investment consultant, will review its database and recommend a list of finalists to the board.
Many public funds, such as the $156.9 billion Florida Board of Administration, Tallahassee, occasionally do invitation-only RFPs. In one instance, the FSBA sent invitations to five specialty fixed-income managers to apply in a shortlist search for a firm to run $1.4 billion in “unusual, illiquid or difficult to market” securities.