The age old saying about measuring twice to cut once applies to RFPs too. Spoiler alert: If you do not have a sense of what you are looking for going into an RFP, asking 50 questions to dozens of managers will not clarify your options! The more work you can do upfront to build consensus on the type of engagement you want, the more effective the process will be. Knowing how much discretion the Investment Committee or Board would like to retain, what type of support is preferred and as many other key factors you can identify will streamline the selection process.
Ask all your key individuals for input. If your institution partners closely with another, check in to see their needs are not overlooked. Search Committees typically include the Finance or Investment Committee, or a subset, along with your CIO or CFO. Consider adding other individuals who bring valuable expertise or a different perspective. From this group, then choose one person who is most familiar with your organization as the primary contact for inbound questions and to collect the responses.
It is easy to do a quick annual review of your Investment Policy Statement and sign off. However, organizations that are about to issue an RFP often take a closer look and all sorts of details, discrepancies, and questions tend to bubble up. Consider delaying an overhaul of your IPS until the RFP process is complete and you can benefit from the involvement of your investment manager or consultant.
A Request for Information (“RFI”) differs from an RFP. RFI’s are typically issued to a broader group than an RFP and ask fewer questions (~ 10-20) which are at a high level. The objective with an RFI is to solicit quantitative and qualitative information that can help you narrow the field for a subsequent RFP. Typical data that you might seek in an RFI may include a business profile, AUM, average/median client size, types of clients, services provided, experience, resources, fee ranges, track record, etc. Further, limit responses to no more than 10 pages.
A public or quasi-public plan may be required to publicly post all RFPs they release, resulting in dozens of lengthy responses. If you have the flexibility to limit the universe of respondents, do so. While an RFI may be issued to ten or more institutions, try limiting respondents to an RFP to five or so. Assuming you have a sense of what you are looking for and have taken the opportunity to speak with similar nonprofits and learned what they like and dislike about their managers, with a little research, you probably have a good sense of which firms you would like to respond. Invite them; no need to “boil the ocean”.
Reach out to connect with nonprofits of a similar size, structure or location to hear about the important lessons they learned, their recent RFP experiences, and what they like and dislike about their manager. You may also find them more than willing to share basic RFP questions with you to provide a starting point. You can also download a sample RFP here. There is always power in a network which shares information and a pending RFP is the perfect reason to reach out and connect.
Share your current investment policy statement and most recent investment performance statement, including current portfolio holdings, in the RFP. If you do not want to reveal the name of your current manager, black it out and re-scan the document. The more information new candidates have, the more relevant their responses will be.
Many standard diligence items are necessary in an RFP and will ‘check a box’. These include: attach your ADV, do you have a disaster relief plan, and has there been any criminal activity. For the remaining questions, the more you can custom tailor and directly relate the information requested to your nonprofit, the more meaningful the responses will be. Also avoid ambiguity in your questions, so you can make “apples to apples” comparisons among respondents. This is particularly important for performance and fees.
RFPs generally include about 50 questions and answering those questions normally takes about 25 pages, excluding the pages of legal disclaimers at the end, plus another 50 pages or so of employee biographies, ADVs and sample reports. That’s a lot of reading and analysis before you even look at the exhibits! Aside from saving your time and sanity, this will force managers responding to create a more relevant, focused response (and widen the margins). It’s a win-win.
Once you have agreed on your priorities, design a scorecard to share with those reviewing RFPs so each person reviewing the responses has a consistent way to evaluate them. For example, “Manager has expertise in partnering with institutional nonprofit plans” which the committee member ranks 1-10. If this is an important question to your group, weight the answer appropriately. This also takes some of the bias and emotion out of the process. The same scorecard can be used again to rate managers during their finals presentations.
As always, Commonfund remains standing by if we can be assistance of you. Click here to read part one of the RFP blog series titled, “Should We Issue an Investment Manager RFP? 7 Key Considerations."