I. Commodity Manager Questionnaire
Product Under Consideration: ______
Firm Name: ______
Contact Person: ______
Address: ______
Telephone: ______
E-mail: ______
Date Completed: ______
ORGANIZATION
1) Describe the ownership structure. Describe the percentage owned by employees and its distribution. What percentage does the majority owner hold? Please provide the name, relationship and percentage ownership of:
· Each parent organization
· Other affiliated organizations
2) Describe the material developments in your organization (changes in ownership, personnel, business, etc.) over the past three years in detail. Are there any changes anticipated in the coming year?
3) Provide an organizational chart diagramming the relationships between the professional staff as well as the parent-subsidiary, affiliate, or joint venture entities.
4) Describe the levels (U.S. dollar amounts) of coverage for SEC-required (17g-1) fidelity bonds, errors and omissions coverage and any other fiduciary coverage which your firm carries. List the insurance carriers supplying the coverage.
5) Please indicate whether the firm is certified as a Minority, Women, or Disabled Business Enterprise (MWDBE) as defined by the Illinois Business Enterprise for Minorities, Females, and Persons with Disabilities Act. If so, please provide a copy of the firm’s certification.
6) Over the past five years, has your organization or any of its affiliates or parent, or any officer or principal been involved in any business litigation, regulatory or legal proceedings? If so, provide a detailed explanation and indicate the current status.
7) Based on your firm’s legal structure, asset management and trading activities please provide a summary of which regulatory bodies you are required to be registered with, including the SEC, CFTC and National Futures Association.
8) Has your firm been the subject of an audit, censure (fine), inquiry or administrative action by the SEC, IRS, CFTC, DOL or other regulatory agencies in the past 7 years? If so, explain findings and provide a copy, as well as evidence of any changes in procedures implemented as a result of such audit.
9) Discuss your organization’s compensation and incentive program. How are professionals evaluated and rewarded? What incentives are provided to attract and retain superior individuals? If equity ownership is possible, on what basis is it determined and distributed? How is the departure of a shareholder treated?
10) Provide information regarding the expiration date of current employment contracts with key personnel. Please include discussion of long term incentives, options or performance clauses.
11) Please provide details on the financial condition of the firm (i.e., most recent annual report filed with the SEC).
12) When was your firm’s last external audit? Identify the firm that conducted the audit. Please discuss any material findings. Has the firm changed auditors in the past three years? If so, explain.
STAFFING
13) Investment Professionals:
a) What other duties do the portfolio managers/research analysts have? Do the analysts provide inputs used in any other strategy? If so, please explain.
b) Describe your firm’s backup procedures in the event a key investment professional assigned to this account/product should leave the firm.
c) Who will serve as the client service officer for the account? How often will the person be available for client meetings?
d) Please provide a list of key investment professionals who have joined or departed over the past five years.
14) Please provide biographies for all of the investment professionals that contribute to the proposed product, including month & year of hire, prior work experience, education and certifications.
15) Provide any other information about your staff that you consider material including reassignments of responsibility, committee changes, prospective additions, etc.
CLIENTS/ASSETS
16) Please provide a list of all of the liquid commodity & liquid commodity-related strategies managed by your firm, including multi-asset-class products that include any allocation to commodity futures.
17) Please provide assets under management information (AUM) and number of clients as of the following dates: 12/31/2014, 12/31/2013, 12/31/2012, and 12/31/2011.
a) Firm-wide
b) Total strategy assets
i) Include a break-out by vehicle (separate account, commingled fund, mutual fund)
18) If possible, provide the names of clients who are invested in the proposed product. Include inception date and market value of each account. Please identify any clients that are large public plan sponsor investment programs.
19) Does the firm have a policy limiting assets under management for this strategy? If so, what is the level at which your firm would close the strategy to new business? What do you think is this product’s capacity?
PRODUCT INVESTMENT STRATEGY
20) Please describe the design of your commodity strategy, including eligible instruments & asset classes (commodity derivatives, equities, fixed income, other), benchmark(s), excess return & volatility targets, and goals or framework for measuring the inflation-sensitivity of the product.
21) Please discuss the types of commodity derivative instruments utilized in managing the proposed product, including any limits on the level of exposure to individual instruments like Swaps, futures, options or structured notes.
22) Discuss the risk-control and monitoring systems utilized by your firm to measure and manage the portfolio risk of the proposed commodity product.
23) Please describe your approach to determining individual position sizes.
24) Please explain your firm’s research process as it applies to the proposed commodity strategy, including the development of views or outlook for current or future individual commodity market pricing, and individual company evaluation if commodity-linked equity exposure is utilized.
25) Please provide an overview of the commodity markets utilized or traded in the strategy. What are the criteria for market selection or inclusion? Are there any benchmark-relative or absolute constraints or limits (minimum or maximum) placed on exposure to individual commodities or category groupings (Energy, Metals, Agriculture)?
26) Does the proposed strategy allow for both long and short-positions in either commodity derivatives or equities? How will the gross and net notional exposure be managed (if applicable)?
27) How is the term structure of the individual commodity instrument exposure managed?
28) Please discuss the liquidity of the proposed product vehicle. What is the separate account minimum? What is the total capacity of the firm to manage assets in the strategy as it is currently managed, and is there a plan in place to close the product at certain level of client assets? How much notice is required to withdraw assets from both separate accounts and commingled vehicles?
29) Discuss the risk-control and monitoring systems utilized by your firm to measure and manage the portfolio risk of the proposed commodity product.
30) Please discuss the use and management of cash collateral in the product. Is the strategy designed to be fully invested at all times, or can market exposure be reduced under certain market conditions or environments?
31) Does this strategy utilize leverage in any way? If so, please describe. What is the expected and maximum leverage employed in the strategy?
32) From what sources does your strategy expect to generate its performance, and in what percentage (i.e., XX% market selection, XX% term structure, XX% collateral management, etc.)?
33) Have you made or are you planning any modifications to your overall investment philosophy or process? If so, describe the process used to identify and effect the change. Evaluate the relative success or failure of the change.
34) What do you believe to be the best benchmark for the product under consideration? Why?
35) Provide performance attribution for strategy proposed for SURS for the one-, three- and five-year periods, ending March 31, 2015, relative to a relevant benchmark. Provide commentary to address relative underperformance or outperformance.
36) What is the anticipated alpha and tracking error for the product?
37) Is the product’s intent to provide beta exposure similar to a commodities benchmark? If not, what would you expect the product’s beta to be? Does it change significantly over market cycles?
38) Provide the firm’s fully discretionary investment guidelines for the product when managed via separate account (if available). Also, provide a prospectus if commingled funds are offered.
39) What is your firm’s view of the current commodity market and the opportunity to generate returns relative to past market conditions? Under what market conditions will this product perform well? Poorly?
TRADING PRACTICES / INTERNAL CONTROL
40) Does your firm utilize soft dollars?
41) What compliance system does your firm employ? How is compliance implemented in your firm’s operations?
42) Provide a detailed summary of your firm’s internal control structure. Who serves as your firm’s compliance officer? Does the firm conduct periodic risk assessment?
43) Have you ever violated a client guideline in the proposed strategy? If so, please describe the violation and the resolution.
44) Please describe your firm’s approach to evaluating and managing counter-party risk in the execution of the proposed strategy.
45) Please provide a copy of your firm’s Personal Trading policy and procedures document.
46) Describe your firm’s process for monitoring trades of the underlying managers. Include information regarding:
a) Does the firm use electronic trading systems to monitor trading? If so, please describe.
b) How are trading costs monitored? How are costs minimized?
c) SURS encourages its investment managers to utilize the services of brokerage firms owned by minorities, women, and persons with a disability (MFDB). Further, it is SURS expectation that the investment managers meet certain minimum levels of MFDB broker participation. Please comment as to your ability to execute and monitor usage of MFDB brokerage firms by the underlying managers. What do you believe is a realistic minimum level that you would be likely to achieve?
MANAGEMENT FEES
47) Please provide a proposed fee schedule for the strategy under consideration, including any breakpoints. Are these fees negotiable?
48) Please provide an overview of all other fees and expenses that would be incurred by SURS if it was to invest in the proposed product, including fees associated with transactions and the custody and administration of commingled fund vehicles paid to third parties or the general parter (asset manager).
49) Does your firm actively re-negotiate fees with underlying managers when appropriate?
50) Would you be willing to include a “Most Favored Nations” clause in your contract? If not, please provide an explanation of why not.
Once a manager has been selected, negotiations of the fee structure may become necessary in order to account for the size of funding, the increments of funding, and any clarification. In no case will the negotiations result in a fee that is higher than the fee contained in the proposal.
MISCELLANEOUS INFORMATION
51) What are the key factors that differentiate this product and give it a competitive advantage over the others in the marketplace? Why do you believe this advantage is sustainable?
52) Please provide an electronic copy of your organizations Code of Ethics and SEC Form ADV (Parts I and II) as an attachment to your response.
53) For any commingled fund vehicles proposed please list the following vendor relationships:
A. Auditors
B. Prime Brokers
C. Administrator
D. Custodian
E. Legal Counsel
54) Please discuss your firm’s business continuity/disaster recovery practices.
55) Has your firm adopted the Principles for Responsible Investment? If so, when? If not, has there been any discussion regarding the Principles? If so, what were the key issues or concerns surrounding the PRI?
56) Please provide information on the type of reporting provided to clients, including timing of reports and details included. Provide a sample reporting package.
57) Briefly discuss the transparency of underlying information. Will SURS have online access to the underlying holdings?
58) Do you offer monthly or quarterly calls to review the overall portfolio? Do you hold annual investor meetings/conferences, etc.? Do you provide an annual strategic overview of the portfolio/market?
State Universities Retirement System of Illinois