The RFP From Hell | Chief Investment Officer

Girard Miller, CIO, OCERS (Art by Tim Bower)Consulting firm proposal writers, if you’re reading this it’s too late.

The document landed on your desk or in your inbox around noon on Tuesday. From the cover page alone, you knew this would be trouble.

“Proposal Deadline: February 29, 2016. Yes, Leap Day :-)”

The $12 billion Orange County Employees Retirement System (OCERS) solicits open bids for a general investment consultant every five years—as per fund policy—and this time around, it scrapped the template for a whole new beast.

NEPC holds the expiring contract, and must re-bid to keep the business.

Anyone who skims through the 56-page request for proposal (RFP) will see the hallmarks of OCERS CIO Girard Miller. It’s bold, experimental, strikingly candid, and throws peer risk to the wind.

“Boilerplate and canned responses will not make it into the semi-finals.” Take question 15. “Do you host or sponsor ‘pay-to-play’ or ‘clients4free but managers pay’ conferences?
Manager-dominated events that produce revenue for you? Do any managers represent that they are ‘sponsored’ by you?” (And yes, the RFP actually says “clients4free”.)

Merely 10% of the way into the questions, and already one particular firm might balk, since it’d be answering “yes” to facilitating “pay-to-play”—a four-letter word in asset management. (CIO does too, by OCERS’ definition.)

After soldiering through the battery of ethics probes, applicants may get their hopes up for copy/paste jobs under “General Firm and Organization Information.” They shouldn’t.

“Select two distinct aspects of your consulting practice and capabilities of clear and major relevance to OCERS, for which one or two competing consulting firms can rightfully say that they presently offer a better capability or track record. Self-awareness and candor will be judged more favorably, as nobody’s perfect all-around.”

And there’s more. The next section requires a “forced ranking” of applicants’ competitive strengths in 10 areas against its largest competitors. For every firm vying to advise OCERS’ $12 billion portfolio, pleasing the research or client service team with a top ranking likewise means offending half the office. Risk management? Performance evaluation? Technical support? One of them has to come last—OCERS’ rules.

The RFP process doesn’t get much love from asset owners or providers. “Cumbersome,” “time consuming,” “Why am I getting responses from all these damn funds-of-funds when it specifically says, ‘No hedge funds-of-funds’??!?”: Those are the things one hears from CIOs speaking freely.

For many asset owners who issue them—OCERS included—RFPs aren’t their chosen tool but a policy dictate.

“Q: What were your research team’s two worst client-money-losing products or strategies in 2014-15; why and what did you learn/fix?” “On the public fund side, it really is required for most asset classes,” says Eric Nierenberg, head of hedge funds for Massachusetts’ $60 billion public pension fund. But, he continues, “is there a place for RFPs? Yes—and not only for the mandatory governance purposes.” In his experience, “you might think you know who’s going to bid, but you get a firm that you weren’t expecting, and is actually intriguing and their answers compelling.”

The RFP model has major advantages for asset owners: Providers do most of the work (in theory) and it builds in protection against underhanded contracting. It’s the implementation that needs—and takes—a lot of work.

“Modernizing the RFP process is certainly something that took longer than I expected it to, and longer than I would have hoped,” New Jersey’s former pension investment chief Tim Walsh told CIO in an exit interview. Asked what he wished he’d accomplished during his acclaimed three-year tenure at the $74 billion fund, improving RFPs was number one.

Among RFP reformers, OCERS’ Girard Miller is in one camp. More questions, more customized, and an explicit warning that “boilerplate and canned responses will not make it into the semi-finals.”

Ariana Amplo, a former investment consultant for what’s now Greystone Consulting, is in the other camp. Amplo launched start-up InHub in 2013 to centralize RFPs on an online platform, streamlining the endeavor for all involved. Providers can auto-populate stock answers for RFPs based on InHub’s template, and asset owners can answer questions and read proposals from a tidy hub.

The best RFPs, she says, “balance customization with respect for providers’ time. You have to include custom questions, but keep it reasonable.” And investment consultants’ commercial product is portfolio guidance, Amplo points out. “You can’t ask for unlimited amounts of free advice.”

As for the OCERS RFP, she says, “I’ll be interested to see how many firms respond.”

Consultants, you have until Leap Day.