There may be circumstances where a board wishes to make a modest modification or adjustment to its mandate with an existing investment manager. An example would be allowing a fixed income “core” manager to invest in one or more additional segments of the market (such as high yield bonds or international securities) up to a certain limited percentage of that manager’s aggregate bond portfolio. PERAC will consider and evaluate requests for such modifications on an individual basis.
In obtaining approval for such modifications to a current investment contract, a retirement board should submit a request for a supplementary regulation relative to the normal procurement process for an investment-related service (840 CMR 16.08). This request should address and provide documentation for the following questions and issues: 1) how the proposed modification fits in under the board’s investment objectives and strategies, 2) the nature of the board’s relationship with the investment manager, including length of the existing contract, investment performance over time relative to existing benchmarks, and the overall quality of client service, 3) the investment manager’s staffing and performance record in the market segment(s) covered by the new mandate, and 4) whether a new benchmark for performance has been or should be selected for the portfolio.
Requests for a modification in mandate should generally involve investments within the same broad asset class and should not involve any substantive deviations from the manager’s basic investment style. Contracts governing the relationship should be amended to reflect the change(s).
This guideline does not permit major changes to an investment mandate, such as giving a manager hired for growth stocks authority to add a value stock mandate or allowing a manager with a large-cap equity mandate to add small caps. For such major changes in mandate, new competitive processes are still required.