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 manahger 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.
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