Pension funds increasingly are issuing requests for information, or RFIs, often a weeding process in searches for money managers and other service providers.
RFIs primarily are used by public pension funds, usually before issuing requests for proposals but sometimes instead of issuing RFPs.
The use of RFIs has exploded during the past two years, consultants say.
Mark Kordonsky, consultant with Buck Consultants, Los Angeles, said the RFI is used to find vendors that meet minimum qualifications before issuing a formal and more detailed RFP.
The RFI also is being used to establish internal databases even if a search is not likely to happen soon.
The RFI is an abbreviated RFP questionnaire that seeks basic information about the vendor. Consultants and pension executives say RFIs are needed because the universe of candidates has grown dramatically.
"It used to be that you could send an RFP and get eight or 12 responses. Now you may get 50 responses and then telephone calls from those who heard about the RFP," said Mr. Kordonsky. "The RFI is shorter, a mini-RFP to gather basic information to establish the qualifications for an RFP. You can determine from the RFI whether firms meet minimum qualifications.
"With the RFI you can weed out 90% of the universe," he said. "You can save an enormous amount of hours by doing this."
Money managers and other service providers save time too. With an RFI, they complete a questionnaire of, say, three pages. If they don't qualify, they don't have to expend the time and energy to fill out a 30-page standard RFP.
One former public pension fund executive urged fund executives to handle RFI responses internally.
"If you don't handle the initial screen internally, it will be very easy for consultants to say 'Here are the top 10.' There is the potential for the consultant to have a pre-approved list of managers. It (the RFI) puts more of the due diligence on the plan sponsor staff," he said.
The $300 million Firemen's Retirement System of St. Louis recently issued an RFI as an initial screening questionnaire for an international equity manager.
John Brewer, executive director, said firms that successfully complete the RFI will be asked to submit a formal RFP.
"A bill passed here in August requires that any new consultant or fiduciary must be sent a questionnaire because of affirmative action requirements, so we are sending out an informational questionnaire. If they don't meet the criteria as established, the firms will not receive further consideration," he said.
The $2 billion Alameda County Employees' Retirement Association, Oakland, Calif., issued RFIs in July as an initial step in a global custodian search. "We have been using the RFI for the past two years as the first phase of any search process," said Alex Acquah, financial analyst at the fund. "It allows us to get a feel for what's available and then we can tailor the RFP to what is out there."
Jo Witt, secretary-treasurer at the $3 billion Oklahoma Teachers' Retirement System, Oklahoma City, said the system used RFIs for an international equity manager search in February.
RFPs were then sent to those firms that met the fund's criteria.
"The RFI keeps you from getting so many responses. The RFP process is a little more cumbersome here because it involves the state Department of Central Purchasing," she said.
Oklahoma requires competitive bidding be handled through its central purchasing office.
"The (RFP) questionnaire was sent to a lot of people who shouldn't have gotten it," said Ms. Witt.
"We used it (the RFI) as a screening process for firms that may have been interested; we analyzed the questionnaires and screened out those that didn't fit the criteria, before sending the RFP."
The system has selected three finalists; a decision is expected in December.
She described the broad distribution of the RFI as a "fishing expedition."
That is the way others in the industry look at the RFI, a way to obtain information about the market and services available without making a commitment to hire.
"The RFI is more of an informal process, with no commitment to hire anyone," said Mark Scott, managing director Wyatt Investment Consulting, Atlanta. "Basically it is to provide information to the boar....They want to get a feeling for what the firm does in a certain area. It's a new way of fact finding."
While the practice is more common among public pension funds, some consultants say corporate funds send questionnaires regularly to a wide universe of money managers and maintain a database in the event a hiring becomes necessary.
Jillian Rudman, vice president at Robertson, Stephens Investment Management, San Francisco, said the firm regularly receives similar informational questionnaires from corporate plans seeking to update their database files on investment managers.
"The questionnaires are not as detailed (as an RFP), it's more product specific and more oriented toward the investment process. A lot of plan sponsors today are choosing to take on this role rather than choosing to use a consultant," she said.
The typical informational questionnaire, both corporate and public, includes questions on the capitalization of the stocks in the portfolio and the investment decision-making process of the firm. The questionnaires also seek information about the firm's sell discipline, quarterly performance updates since inception, portfolio characteristics, growth rate in earnings per share and changes in investment style.
