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2019 National Conference on Special Needs Planning and Special Needs Trusts Stetson University College of Law

Wednesday October 16, 2019

1:15 – 2:05 p.m.

“Who’s on First…What’s on Second?” How to Navigate through the Investment Management Functions of a Pooled Trust

Organization

Scott Nixon. Andy Dunlap Executive Director Consultant Life’s Plan Inc. Fourth Street Performance Partners 901 Warrenville Road Suite 500 211 Garrard Street Lisle, Illinois 60532 Covington, KY 41011 630-628-7189 859-491-5556 snixon@lifesplaninc.org. adunlap@fourthst.com

 

 

 

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Table of Contents 

“Who’s on First…What’s on Second?”                                                                                         

How to Navigate through the Investment Management Functions of a Pooled Trust Organization 

I. Management Controls over the Pooled Special Needs Trust (PSNT) and its investments 

Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) 

Social Security Administration’s Procedure Operations Manual System (POMS) 

Who is Investor?  Who takes responsibility and management controls of a PSNT? 

Role of the beneficiary? 

Prudent Investor Rule?   

II. Investments/Investment Policy Statement (Addendum A)  

Recruitment/Development of PSNT board 

Role of an Investment Committee 

Role of Investment Advisor and other bank agents 

Investment Goals and Objectives 

Demographic factors 

Diversification 

Asset Allocation 

Prohibited Transactions 

Rebalancing the Portfolio 

III.  Investment Performance Evaluation (Addendum B) 

What it should include? 

How to monitor portfolio investments and performance 

Adherence to the PSNT’s IPS 

Benchmarks, Risk tolerance, and Peer group analysis 

Fund Manager Scorecards 

Performance reports with or without consultant fees. 

IV. Request for Proposal (Addendum C) 

What kind of financial services are you looking for? 

How to conduct a Request for Proposal (RFP) bidding process? 

Setting expectations to finding a qualified advisor 

V. Addendum items 

XYZ Investment Policy Statement (Addendum A) 

XYZ Investment Performance Analysis (Addendum B) 

Request for Proposal template (Addendum C) 

 

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I. Introduction

Investing trust funds for a Pooled Special Needs Trust (PSNT) is one of the more

challenging responsibilities for a non-profit organization. A volunteer PSNT Board

should expect to get a reasonable rate of return without taking undue risks. There

may be restrictions under Federal and State laws as well as provisions in the trust

agreement itself that may limit how a PSNT can invest their pooled funds.

Fortunately, there are many qualified financial advisors who have and continue to

work with PSNTs. Finding them may not always be an easy task. For a PSNT board

it can be a maze to navigate and figure out what works best for the organization while

finding and securing the best financial partners for the non-profit. A PSNT must

have investment goals and objectives for their beneficiaries en masse. A PSNT must

draft a written policy, an Investment Policy Statement (IPS). But before they can

commit to a course of action, they need to be aware of their federal and state laws.

This session will explain how a PSNT and its Executive Director can meet their most

basic fiduciary needs with confidence.

a. Omnibus Budget Reconciliation Act of 1993 (OBRA ’93)

The Pooled Trust is defined under US Code 42 USC 1396p (d)(4)(c)1. PSNTs

received directions from Congress with regard to how they approach their financial

trust management duties to a degree. The law is clear about who must manage an

OBRA ’93 pooled trust. A Non-Profit Association must establish and manage a

Pooled Trust. Congress also clarified two other specific details on the management

requirements: 1) separate accounts must be maintained for each beneficiary and 2)

the trust funds must be pooled. OBRA ’93 was enacted 26 years ago. PSNTs in

earlier years after OBRA ’93 was first enacted took a lot of latitude in deciding for

themselves how they managed their beneficiaries’ trust assets and investments. In

addition, probably gave up much control to their bank/trust managers in handling

these large fiduciary responsibilities. There was limited guidance from the federal

law or the SSA POMS with little repercussion for the PSNT on how much

management control and powers they relinquished to their agents? If a PSNT board

lacked enough members with the necessary experience like attorneys and financial

                                                            1 https://www.law.cornell.edu/uscode/text/42/1396p 

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planners, to making these important financial trust decisions. It could be difficult for

a PSNT board to sort out the confusion and make the best fiduciary decisions for the

non-profit. For a PSNT it can be misconstrued with the lack of details in the law and

in the earlier days of the Social Security Administration’s Procedure Operations

Manual System (SSA POMS). For a PSNT to retain full management controls at all

times over the pooled trust assets with a volunteer non-profit board it can be a

daunting task. This is where the confusion lies with the challenging decisions and

issue regarding how the PSNT retains its controls over the pooled trust assets, while

deciding how to best delegate their critical fiduciary responsibilities to others. While

not giving away too much control that could it puts the organization at risk.

b. SSA POMS Section SI 01120.2252:

Finally April 3, 2012, the SSA POMS came out with very specific details on how a

PSNT should expect to manage their financial responsibilities over a pooled trust per

the federal law and the SSA POMS, and who should have control and how to

delegate these financial responsibilities to others.

Background Details Section B: To qualify under Section 1917(d)(4)(C), a pooled

trust must be managed by a non-profit association. By law, each trust beneficiary

must have a separate account, but the non-profit manager can pool these funds with

the funds of other members of this communal trust.

In some instances, the non-profit manager(s) may employ the services of a for-

profit entity to manage some of the financial activities of the trust. This policy allows

Field Office Technicians to discern if a closer look at the PSNT financial

management controls is warranted, and delegation of those duties as reviewed in the

written PSNT’s Master Trust agreement. This newer POMS section, presents the

understanding from SSA’s perspective that a PSNT has greater depth of investment

and financial management responsibilities that often requires the assistance of for-

profit entities. This is importance that was needed for PSNTs for years that was not

previous accessible in the federal law or the POMS.

SSA POMS Section SI01120.225 Section D- Policy on Use of For-Profit Entities

                                                            2 https//secure.ssa.gov/apps10/poms.nsf/inx/0501120225 

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This POMS section language is very clear…crystal. PSNT’s MUST maintain

“Ultimate Managerial Controls” over their pooled trust assets, some examples

included: determining the amount of the trust corpus to invest, removing or replacing

the trustee; and making day-to-day decisions regarding the health and well-being of

the pooled trust beneficiaries.

The PSNT For-Profit entities must be clearly defined in the PSNT’s trust

documents to being subordinate to the PSNT non-profit. The Note to end this

section suggests that these are just a small list of a few examples that is not intended

to be exhaustive.

SSA POMS Section SI01120.225 Section E- Procedure for Determining

Management Control of The Pooled Trusts suggests to Field Office Technicians the

following: 

Do not routinely question the relationship between the non-profit

association and for-profit entities used by the pooled trust.

However, before excepting a pooled trust under section 1917(d)(4)(C),

review the trust for any provisions that indicate the non-profit association

has not retained sufficient authority over the pooled trust to meet the

criteria in section 1917(d)(4)(C).

For example, a pooled trust may not meet the criteria in section

1917(d)(4)(C) if the trust includes a provision that allows the for-profit

entity to determine whether to make discretionary disbursements from the

trust.

Refer the pooled trust document to the regional office for evaluation if it

appears that the non-profit organization may not have sufficient control

over the management of the trust for the trust to be excepted under section

1917(d)(4)(C).

PSNTs have been acting on their own accord with their investment management

duties for nearly two decades before POMS SI 01120.225 arrived. It took SSA

sometime to finally catch up to clarifying the important aspects of a PSNT fiduciary

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role. POMS SI 01120.225 finally set it to writing. They defined the terms and

conditions on how a PSNT should operate its management. Here are the takeaways:

A PSNT should be sure their master trust documents clearly state and define

their full management control at all times. The PSNT has “Ultimate

Controls” over the management of their financial agents all the time per the

POMS.

It should be clear in the master trust that the For-Profit entities are

subservient or subordinate agents to the PSNT.

It may be recommended to state clearly under any delegation of duties under

the PSNT’s Master Trust that while delegating duties to For-Profit entities

for trust management, investments or taxes. That the trust instrument still

clearly define the management authority retained by the PSNT, SSA POMS

Section SI 01120.225

This POMS section SI 01120.225 also allows a PSNT a 90-day amendment period

for all previously excepted OBRA ’93 trusts. Particularly, if the PSNT’s Master

Trust/Joinder Agreement which originally was deemed an excepted trust is now flagged

by SSA as being out of compliance due to this POMS section on management controls. A

PSNT will have 90 days to clarify and amend the originally excepted trust document. The

beneficiary will not lose critical Supplemental Security Income (SSI benefits) during this

90-day amendment period. This 90-day amendment period would apply to Medicaid for

any states that fall under Section 1634 and likely many others, e.g. 209b states like Illinois

recognized the SSA POMS with limited review of PSNT’s management controls. Other

states may not even be aware of these newer management controls under the state’s

Medicaid statutes.

Other key provisions under the POMs Section SI 01120.225. This section pertains

to Pooled Trusts Management provisions, which is important for a PSNT to review the

drafting within their own joinder/master trust documents to assure SSA they are in

compliance to with their management provisions particularly in delegating duties to other

For-Profit entities.

c. Who is Investor? Who takes responsibility and management controls?

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Under the federal law, SSA POMS Section SI 01120.203 and Section SI 01120.225

there is no confusion that a PSNT’s non-profit association establishes, manages and

retains “ultimate control” over the pooled trust assets, the investments and the advisors

and trust mangers as principal investor.

But it is clear today under POMS section SI 01120.225 that PSNTs can delegate their

financial duties of financial/ investment management over to others, 3rd parties, For-Profit

Entities without issue. As long as the PSNT can demonstrate their “ultimate” controls as

“Investor” and “Trustee” in provisions written under their PSNT’s Master Trust

Agreement.

d. Role of the beneficiary? When it comes to an OBRA pooled trust investment

policy, there should be no role for the beneficiaries. None! Beneficiaries under the

OBRA ‘93 federal law and under POMS Section SI01120.2033 should have no

discretionary powers over the OBRA trust and/or trustees in selecting their investment

strategy.

An OBRA pooled trust must be irrevocable to the beneficiary, under strict

adherence under the federal law, the SSA POMS section SI 01120.203. Under no

circumstance shall the beneficiary have any authority over the PSNT to distribute trust

funds nor direct the pooled trust’s investments. The PSNT’s master trust agreement

should clearly spell out the PSNT and its board’s full discretionary powers to handle all

trustee duties including trust fund management and oversight, the handling of the

investments and the delegation of such duties, which cannot include the beneficiaries. It

would be a direct breach of a PSNT’s fiduciary responsibility to relinquish these

management controls. Those decisions should be 100% left at the discretion of the PSNT

as Sole trustee. A beneficiary’s request for more conservative investment strategy could

be taken under advisement by a PSNT. The beneficiary’s investment requests for the

pooled trust subaccount should not be given strong consideration by the PSNT. The

PSNT must unequivocally retain all powers and authority over their trust management

decisions and duties in managing pooled trust assets.

e. Uniform Prudent Investor Act (UPIA)

                                                            3 https://secure.ssa.gov/poms.nsf/lnx/0501120203 

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“Most States have laws that require trustees to diversify the investments, avoid

conflicts of interest, and minimize investment costs. In most states, the source of these

laws will be the Uniform Prudent Investor Act, which governs investments by trustees.”4

The Prudent Man Rule was based on Massachusetts Common Law dating back to

1830 in the case of Harvard College vs. Amory, 26 Mass. (9 pick.) 446(1830)5. The

American Bankers Association later sponsored a Model called the “Prudent Man rule” in

1942. The Prudent Man Rule in its earliest inception stated that a trust fiduciary was

required to invest trust assets as a “Prudent Man” would his own assets with the following

in mind:

The needs of the beneficiary

The need to preserve the estate

The need for income

The Prudent Man rule became the Uniformed Prudent Investor Act (UPIA) restated in

1959 and then again in 1992 and then finally in its most recent edition (1994). UPIA was

designed to promote uniformity among all US states. Since 1994 the UPIA has been

enacted now 45 states.

The most important change under the UPIA (1994 version) was the standard of

Prudence would not just apply to just one individual investment under a trust portfolio,

but the entire portfolio must be looked at in its entirety to determine its prudency. This

1994 abrogated law made five major revisions to the statute that still apply today:

The standard of prudence is applied to any investment as part of the total

portfolio, rather than to individual investments

Tradeoff in all investing between risk and return is identified as the

fiduciary’s central consideration

There are no longer any category restrictions; the Trustee can invest in

anything that plans an appropriate role in achieving the risk/return

                                                            4 Barbara Jackins, Esq., Richard S. Blank, Esq., Ken W. Schulman, Esq. Managing a Special Needs Trust, A Guide for Trustees 2015 Edition, page 126 (2015) 5 Uniform Prudent Investor Act 9  (1994) 

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objectives of the trust as long as it meets the other UPIA requirements of

prudent investing

Diversification is explicitly required as a duty for fiduciary investing

A fiduciary is permitted to delegate investment management and any other

duties to third parties

The UPIA also clarifies important aspects of a trustee’s duties in overseeing

the trust investments of a trust.

Duty of Loyalty- a trustee shall invest and manage trust assets solely in the

interest of the beneficiaries

Impartiality- The duty of impartiality derives from the duty of loyalty, when

a trustee oversees a trust there may be more than one beneficiary, Prudence

in investing and administration requires the trustee take into account the

interests of all beneficiaries and remainder beneficiaries for whom the

trustee is acting, keeping all the competing interests of all beneficiaries

they serve in mind. Each beneficiary is different and the trustee must act in

the best interests for each one.

Investment costs- When investing trust assets, wasting beneficiaries’ money

is imprudent. Trustees must implement investment strategies for the

investment and management of trust assets and with the obligation of

minimizing costs.

Duty to Monitor- applies to both managing and investing trust assets.

“Managing” embraces monitoring, which is a continuing responsibility for

oversight of the suitability of the investments as well as the trustee’s

decisions with respect to new investments.

Duty to Investigate- This was carried forward to the UPIA that it’s

fiduciary investor (PSNT) duty to verify and examine the material

investment information relative to its value in the portfolio, e.g. auditing

reports or records of title.

Delegation of investment and management functions- A trustee may

delegate investment and management functions. The trustee in delegating

such duties shall exercise reasonable care, skill and caution with following:

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o Selecting an agent

o Establishing scope and terms of the delegation, consistent with

purposes and terms of trust agreement

o Periodic review of the agent’s actions in order to monitor their

performance

o If a trustee complies with section 9 of the UPIA in delegating

investment and trust management to an agent, a trustee will not

be held liable to the beneficiaries or the trust for the decisions or

actions of the agents.

In summary the Uniformed Prudent Investor Act(UPIA) demands trustees take into

account such factors as risk and return, needs of the beneficiaries, the effects of inflation

or deflation, general economic conditions, potential tax consequences, a beneficiary’s

need for liquidity, and income or preservation of capital. For a PSNT the UPIA will

protect the non-profit and its advisors. As long as the PSNT takes reasonable care in

prescribing to the UPIA’s recommendations here and apply it within their own PSNT’s

Trust’s investment policies.

II. Investments/Investment Policy Statement (IPS)

As a PSNT, you “must” invest the pooled trust funds. As a trustee, you are supposed to

make the trust “productive”. The pooled trust funds should generate a reasonable amount

of earnings for all the beneficiaries, not for just a few. This will likely include a mixture

of stocks, bonds and cash, often using mutual funds. The pooled funds are not intended to

sit in a non-interest bearing account, unless it’s in preparation to closing a subaccount.

The investments should be set up in a prudent, reasonable manner in order to make an

expected rate of return reasonably without unnecessary risks prescribed by the UPIA.

When it comes to Special Needs Trust investments, particularly a pooled trust, it is best

for the PSNT to take the more conservative approach in its goals and objectives.

The IPS should be a dynamic document for the PSNT that should set specific

goals/expectations and risk tolerance that are clearly written out in the policy document.

The IPS should be thoroughly reviewed by PSNT Board, its investment committee and

investment advisors/managers semi-annually. The IPS should clearly identify the PSNT

as principal investor, the role of the PSNT investment committee, and as importantly the

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role of the investment managers as agents to a PSNT organization. For a PSNT and its

Director, the IPS development should be a team approach utilizing the talents of the board

at the top, its investment committee, while leaning on the investment advisors for their

advisement and recommendations to which the PSNT board will provide continued

management oversight. The IPS should be accepted by all three parties (PSNT Board,

investment committee, investment advisor) with broad consensus on the final draft. The

PSNT Board of Trustees will approve the final IPS draft. The IPS is a fluid document that

should be expected to change and mature over time.

a. Recruitment and development of PSNT Board

This entire IPS development process and ongoing re-drafts of this very

important document to the PSNT starts with the board of trustees. It is critical that a

PSNT find and retain at least three or four board members or more, who qualify with the

necessary financial credentials to oversee this responsibility for the PSNT. Board

members could be Bankers, Certified Financial Planners (CFPs), Certified Financial

Analysts (CFA), and even Certified Trust Officers (CFTA) from a local trust company,

ideally a combination of all of the above including a Certified Public Accountant (CPA).

PSNTs who have not fully developed their board membership or developed an

investment committee must. But they can still survive with these critical financial

supports and recommendations from their paid investment managers on the drafting of the

company’s IPS. But buyer beware! You pay for what you get in your advisors and that

can lead to potential liability and risks. Especially if they do not know about the UPIA

with inexperienced PSNT board solely dependent on the advisors to completing the IPS

draft.

The PSNT needs those board members with the financial expertise to serve on

behalf of the board’s interests bringing the necessary expertise, constructive criticism to

the board and bridging the gaps between the advisors and the PSNT on any matters related

to the financials, investments and the IPS. The PSNT must retain their managerial

controls to a reasonable degree. There is a very fine line there especially if a PSNT board

membership lacks enough board members with finance experience. It would be natural to

expect a PSNT would be at certain disadvantages with an inexperienced board

membership and would prefer to relinquish likely more controls to their advisors then they

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should, which puts them at risk and uncertainty when it comes violating the federal law,

and the SSA POMS section SI 01120.225 on Pooled Trusts Management provisions.

The PSNT board must maintain ultimate controls especially particularly through

it’s IPS in overseeing their advisors work. So clearly, a PSNT without the critically

important board members with investment expertise will pose some potential liability

risks. Certainly, it would put a PSNT at a disadvantage in many aspects of the PSNT

board’s fiduciary duties, especially when it comes to overseeing the investment managers’

work and the IPS. The committee has a responsibility to the development, drafting and

revisions of the organization’s Investment Policy Statement (IPS). That responsibility

never ends!

If a PSNT does not have the sufficient number of board members with the financial

background necessary in overseeing the pooled trust investments, the PSNT Executive

Director must get out, recruit and develop board members to fulfill this critical need.

PSNT’s should minimally have three board members to serve on their investment

committee no less.

As critical for a PSNT to retain board members with financial expertise, it is equally

important for the PSNT to retain board members with legal and tax backgrounds,

particularly in the areas of Special Needs planning, Elder Law, Estate and tax planning. It

helps to have a Certified Professional Accountants (CPAs) for audits and trust taxation as

well.

b. Role of the Investment Committee

The PSNT investment committee is a responsible party for its board in overseeing the

investment managers. PSNT should strongly consider an investment committee if one is

not developed. A PSNT investment committee is critical in helping its board navigate

through much of its financial and investment needs over the pooled trust.

The main function of the committee is to draft, develop and at times revise the

Investment Policy Statement (IPS). The Investment committee should review this

document semi-annually. The committee should be involved in overseeing the investment

advisors, which is typically done through the quarterly portfolio performance reports.

The PSNT Treasurer is the acting Chair over the Investment committee. An

investment committee is the most effective way to manage a volunteer board membership

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‘s time particularly for the non-financial board members. The investment committee

should also be overseeing annual or bi-annual pooled trust cash outflows for the entire

pool and individually, particularly high cash outflow subaccounts. This is another form of

an audit for board to oversee the PSNT’s Director and Trust Administrators annual

disbursement work levels. The investment committee is really the key to handling much

of the financial matters related to the PSNT.

If a PSNT board has a strong investment committee, they are able to handle any

financial/investment challenges while advising the board along with way, leaning on the

PSNT’s investment managers to do some of the heavy lifting on the investment portfolio

and reporting details. While the PSNT Executive Director will provide the beneficiaries’

important demographic details and financial reports and their trust administration work

related to outflow of trust funds. A strong, competent investment committee should

develop great repoire with the investment advisors. If not, and relations are strained, then

termination may be necessary. More importantly, the committee will give a PSNT board

what it needs in fully understanding their fiduciary role and duties, while doing things the

right way to protecting the non-profit’s legal/financial interests, while fulfilling the overall

investment goals of the pooled trust beneficiaries. Remember the PSNT board is a

volunteer group. They like to sleep well at night. A good investment committee will help

them do… just...that.

c. Role of the Investment Advisor and any other bank agents

Once a PSNT has found the right investment manager(s) for their organization, the

next challenge is figuring out who is responsible for the investments and how much

control can be handed off to them.

The investment advisors should function in an advisory capacity only to the PSNT

board with responsibilities that include:

A. Advising the Investment Committee regarding the selection of and

allocation to asset and style categories within the constraints of the

Investment Policy

B. Conducting Investment Manager (mutual fund managers) searches

when requested by Investment Committee

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C. Monitoring the performance of the Investment Manager(s) to provide

the Committee with the ability to determine the progress toward the

investment objectives.

D. Communicating matters of policy, manager research, and manager

performance to the Investment Committee

E. Reviewing the Trust’s investment history, historical capital markets

performance and within the contents of PSNT’s Investment Policy

Statement (IPS)

The investment advisors as Advisors or Consultants to the PSNT board and

particularly to the investment committee should be expected to attend either in person or

via teleconference for all board and investment committee meetings.

d. Investment Goals and Objectives

Investment Goals and Objectives must be determined between both the investment

committee and the PSNT hired Investment Advisors. The focus should be on a obtainable

rate of return objective, risk tolerance with a long-term perspective (5 years>) with a well-

defined time horizon, along with the short-term constraints of the beneficiaries needs for

income. A primary purpose of a pooled fund is that it offers clients with smaller accounts

access to better quality group of investment funds at a lower cost. That is one of its

greatest advantages a pooled trust has over individually managed small accounts.

e. Demographic factors

The beneficiaries’ demographics are critical in setting the overall goal and objectives

for the PSNT’s pooled trust’s investment policy. The data must be provided en masse, all

pooled trust beneficiaries’ data combined together and averaged to a standard mean, not

one individual can be viewed of greater importance than another when analyzing the data

to setting up a pooled trust IPS. The demographic factors play critical part in establishing

the appropriate rate of return and understanding what level of risk is acceptable. The

important demographic information should include the following:

1. General economic conditions

2. Effects of inflation/deflation

3. Effects on tax consequences

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4. Average age of all your pooled trust beneficiaries

5. Average trust size of each subaccount

6. Total average annual cash outflow of all pooled trust accts (%)/per

client (%)

7. Average trust subaccount life expectancy

8. Average Beneficiary life expectancy

f. Diversification

It is critical for pooled investment vehicles to utilize diversification as main

point of its’ prudent investment strategy. Under the 1992 restatement of the

Prudent Investor Rule,6 “There is no automatic rule for identifying how much

diversification is enough. The 1992 Restatement says: “Significant diversification

advantages can be achieved with a small number of well-selected securities

representing different industries”….Broader diversification is usually to be

preferred in trust investing, and pooled investment vehicles make thorough

diversification practical for most trustees.”

Diversification is an important concept for prudent investment. Its essential

purpose is to spread out risk in minimizing losses across different asset classes and

sectors. One level of diversification is to divide the PSNT portfolio amongst three

main asset classes, e.g. 60% Stocks, 30% bonds and 10% cash. This way any

significant losses in stocks could be offset by gains and interest from the bonds and

cash side of a portfolio. Yet the stock portfolio is not 100% vested which is also

beneficial in a declining market. “The benefit of diversification does come at a

price. In a rising stock market it would have (in retrospect) been better to have

more money invested in stocks.”7 Few investors can predict with any accuracy

when the market is ripe for buying and when it is time to sell. A PSNT goal is to

avoid such a risky stock trader mindset and look through at the use of an IPS to

setting a prudent diversified objective and sticking to that goal consistently for the

long term. This applies to what UPIA is telling us as Trustees in meeting our

minimum prudent standards. The PSNT must set a reasonable rate of return

                                                            6 Restatement of trusts (1992) 3d: Prudent Investor Rule 227 7 Barbara Jackins, Esq., Richard S. Blank, Esq., Ken W. Schulman, Esq. Managing a Special Needs Trust, A Guide for Trustees 2015 Edition, page 137 (2015) 

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objective using a similar diversified strategy, while fully understanding it’s risks

(risk tolerance) for losses.

g. Asset Allocation

An asset allocation strategy is an additional way to diversify trust assets

across many different sectors, e.g. technology, financial, healthcare, and consumer

staples.

Asset Allocation takes diversification a step further. For the PSNT it is an

important additional step to protect itself under the UPIA by using asset allocation

to broaden the breadth of the assets within the pooled trust portfolio. Asset

allocation is diversification across many asset classes is the primary means by

which a portfolio can avoid undue risk of large losses over long time horizons.

A good IPS should protect against unfavorable outcomes within an asset

class due to the assumption of large risks by taking reasonable precautions and

avoid any excessive investment concentrations in any one class. As important to

avoiding risks with an asset allocation is the weighting of the different asset classes,

which should be weighted evenly across the different asset classes in the portfolio.

Here is the last critical important part on asset allocation and the asset allocation

hierarchy of decisions that must be considered in the order from most important to

least important:

1. What is the length of time that the portfolio can be committed to

specific Investment Policy?

2. What asset classes will be considered for investing?

3. How much of the Portfolio will be invested in Each Asset Class?

4. Within Each Specific Asset Class, What Strategies or Styles will be

used?

5. Which Manager(s) will be selected to Manage Each Specific

Strategy or Style?

Strategic Asset Allocation has worked over long periods in managing risks while

meeting or exceeding portfolio performance.

h. Prohibited Transactions

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It is at the discretion of the PSNT’s investment committee to ascertain the

standard of care of which is determined whether under the UPIA or not, through

investigative analysis on what is deemed as strictly prohibited transactions for the

investment advisors. The UPIA does not put any limits on the type of investment a

Trustee is prohibited from selecting as long as there is a reasonable standard of care

by the trustee in attempting to achieve a performance objective within the overall

portfolio. Here are some prohibited transactions for an IPS to recommend:

Purchasing securities on margin or executing short sales

Pledging or hypothecating securities, except for loans of

securities that are fully collateralized

Purchasing or selling derivative securities for speculation or

leverage

Engaging in investment strategies that have the potential to

amplify or distort the risk of loss beyond a level that is reasonably

expected, given the objectives

i. Rebalancing the Portfolio

A PSNT IPS should allow the investment portfolio to re-balance as needed when

the established target allocations exceed their maximum limits. This is critically

important to managing the overall portfolio in meeting its performance objectives

while mitigating undue risks.

It is up to the PSNT investment committee in setting the parameters for when

the investment management team must rebalance the portfolio to the IPS’ target

benchmarks. The rebalancing will incorporate portfolio activity of cash flow in,

e.g. dividend payments back in to the pooled fund itself and cash flow out, e.g.

beneficiary distributions for payment of supplemental goods and services. It is up

to the PSNT investment committee to provide the IPS recommendations on

rebalancing and a reasonable timetable when the investment managers must act.

III. Investment Performance Evaluation (Addendum B)

a. What it should include?

Each quarterly portfolio performance report should review the following:

18  

1. It should review the current global economic conditions that played a

role in the current performance of the pooled fund, with information

on possible future predictors of performance on stock markets, bonds,

interest rates domestically and globally.

2. The Portfolio report will be viewed in context of the entire portfolio

(UPIA 1994) cumulative and measured by each individual asset class

and mutual fund against their competing indexed benchmark

performances (Asset Allocation).

3. The Pooled Fund’s Portfolio performances should have historical data

on quarterly, annual and long-term performances for review on all

reports times. Historical data is relevant to overall understanding of

the effectiveness of the IPS and its goals/objectives, though it will not

forecast future returns. IPS goals and objectives also may change or

adjust as well over time.

4. Risk/reward analysis should be provided on each mutual fund/stock

within the portfolio. These should be set up as a style map and

risk/return grid for 5 years, see addendum b pages 9 & 13 as samples.

5. Fund Manager Scorecards- All mutual fund managers within the

PSNT portfolio should be rated against their peers, with termination of

any mutual funds with extended poor performance over a certain

period.

6. Portfolio Performance reports should include return on investment

with and without advisor fees, gross return vs. net return, this does not

include mutual fund manager’s fees

7. Appropriate management tools for a Non-Profit board should be

embedded in their investment policy statement with regards to

oversight in the performance of the portfolio and of the PSNT

Investment Advisors.

a. How to Monitor?

The investment policy statement should clearly identify what the Investment

Advisors can have discretionary decisions over the pooled trust investments, e.g.

19  

mutual fund selections. However, within the IPS, it should set clear parameters that

should including defining the roles of the PSNT Managers/Advisors, the PSNT

Investment Committee, what the actual investments can look like, and the terms

and conditions the trust managers must work under which should only be

negotiable through board actions. How the investment advisors’ work is judged

and measured will not just by the IPS itself, but also more actively through the

quarterly portfolio performance report. The board and/or investment committee

must ensure that the investment managers are in adherence to the PSNT’s IPS.

How does a PSNT do that? There should be measurable benchmarks tied in to the

quarterly investment performances reports that is easily identifiable for even non-

financial board members. The quarterly performance report should correlate back

to everything previously established within the IPS. It will be the scorecard for the

PSNT to ultimately discern how well the pooled trust’s investments have

performed. As importantly it will help establish how well the investment advisor’s

performance aligns to PSNT’s IPS in meeting their overall performance objectives

and fully understanding the final costs for these investment services.

The final Asset Allocation strategy of fund should be left to the advisor’s to

decide. The PSNT should make final approvals on those recommendations, but

board members should remain on sideline in the mutual fund selection process. As

long as that strategy meets the minimum IPS guidance, the investment advisors

can demonstrate their compliance to benchmarks for the PSNT board through the

quarterly portfolio performance report. The Advisors should include a quarterly

oral presentation of the report to the PSNT board, either in person or via

teleconference. The PSNT board members need to be prepared to ask questions,

tough questions at times, particularly as it pertains to market conditions, poor

quarterly performance, oversight and adherence to the IPS and anything related to

the overall portfolio performance report and the advisors’ work. Even when there

is a good portfolio performance, there are always opportunities for the board to ask

questions, e.g. forecasts on future economic data, review the IPS or cash outflows

or the mutual fund performances individually or overall economic data and

conditions. There are always opportunities for a PSNT and its’ board to further

20  

develop and improve on their IPS during the quarterly meetings that should not be

overlooked.

IV. Request for Proposal (See Addendum C)

a. What kind of financial services are you looking for?

For a PSNT finding an appropriate bank or trust company or investment

custody bank agent is no easy task. Often large, institutional banks are rarely

interested, unless the PSNT has at least $25 million or greater under management.

Even that is no guarantee. The big banks/trust companies usually cannot offer a

small PSNT the quality services they really need at a fair price. For most big

banks/trust companies, either the work is too labor intensive or their fees are not

going to cover their expenses for managing a pooled fund.

Looking for investment advisors may present different challenges. There

are many qualified advisors out in the marketplace today, a dime a dozen perhaps.

Are the Advisors competent and experienced in handling a PSNT pooled

investments? There will be many more applicants bidding for a PSNT opening in

finding a qualified investment advisor. Finding and selecting an Investment

Advisor alone can also be challenging for a PSNT and its board to landing the

right fit for the long term among many choices and options.

The need for a PSNT to set up as a pooled common fund or unit trust

demands a specific pooled trust software. The trust software itself is expensive.

Some PSNTs have developed their own pooled trust software, which is a good

possible solution to managing costs. However, for PSNTs with their own

software, it is critical to have a software developer’s technical supports throughout

the life of the software, which does present a challenge in this ever-changing

technological world if the software is not slowed or not up to date. If something

were to go wrong with the software without the necessary technical supports. It

could be very unsettling for a PSNT Executive Director to consider this option in

setting up their own proprietary trust software.

Some PSNTs can lease the pooled trust software, which is more affordable.

There are companies that can offer renting their pooled trust software to a PSNT.

These companies provide the PSNT the necessary supports and training for the

21  

PSNT to administer the software, updates when available, but it does requires a

minimally the use of bank custody account to merge with the trust software in

holding and accounting the pooled trust assets. This is another option for PSNTs.

PSNTs minimally need access to pooled trust software in order to operate

under the federal OBRA law and the SSA POMS. There are only a limited

number of willing partners as Co-Trustees/bank agents available to offer their

services and access to the necessary pooled trust software. Unless a PSNT has

access to their own proprietary pooled trust software, they are often at the mercy

of what is available in the open marketplace with limited options to choose.

b. How to conduct a Request for Proposal?

For the PSNT, a Request for proposal (RFP) is a critically important process to

consider. It can greatly assist in finding a new bank agent, Co-Trustee, or

Investment Advisor or all of the above through a bidding solicitation process. The

RFP document itself will help structure a bidding process, while facilitating what

can be a difficult search particularly while relying on a volunteer board of trustees.

It is critical for a PSNT to have the time they need to do their due diligence

in preparing the RFP for release to willing bidders, getting the word out about the

RFP and finalizing a qualified group of finalists for the PSNT board to review.

Minimally a PSNT should minimally allow for 90 -120 days or longer in

completing their RFP search. This does not include transition time in departing

from the old agent to a new one. That may add additional time upwards of another

60 to 90 days.

c. Setting Expectations

Here are some things a PSNT may want to consider in their RFP:

What kind of banking agent are you seeking? e.g. Co-Trustee, Investment

Advisor, Custody Bank Agent

Provide detailed background on the PSNT & general financial needs of

organization

Details on what the PSNT is looking for specifically

Outline what the PSNT expects in the written proposal, e.g. how should it

be formatted, times new roman 12 font no more than 10 pages.

22  

Clarify credentials, accreditations and referrals seeking to follow up on with

finalists

Any grading system the PSNT may want in the search should be kept

internal use only

Fee schedule for the work

If seeking an Investment Advisor provide a copy of the IPS for review and

feedback and willingness to work with current IPS.

Clarify deadlines and designation when, where and how to submit final RFP

proposals

Suggested things not to put on a PSNT proposal:

Fee expectations by PSNT on RFP- financial agents will provide their fee

schedules on initial written proposal. The PSNT is looking for multiple

bidders and not necessarily always the lowest bidder. It is good for a PSNT

to review all relevant bids not matter how high the fees.

Specific terms and conditions of contract for winning bid should not be

discussed until winning bid has been made.

Absolute deadlines on when transition time must take place

d. How to conduct an RFP process?

Typically, the PSNT investment committee headed by the board’s Treasurer will

work with the Executive Director on completion of a final written RFP proposal. The

Executive Director will be responsible for the collection of the RFP bids. Once the RFP

deadline has passed, the Executive Director and Treasurer should confer and determine

how the RFP process is handled for the initial reviews of RFP applications. If there are a

large number of bidding proposals then it is important to be efficient with everyone’s time.

The Executive Director will do much of the initial screening. When there are many

qualified candidates. It does help that the Treasurer get involved in review of the initial

applications to selecting a quality group of finalists. This first round of finalists should

then go forth and be presented to the PSNT’s investment committee. The investment

committee can then review with the Treasurer and Executive Director all qualified bids in

selecting finalists to go forth in front of the PSNT Board for final in-person presentations.

23  

The RFP finalists selected should be expected to present in person to the board due to the

important nature of these potentially long-term partnerships. Videoconferencing may be an

acceptable alternative if acceptable to the PSNTs.

The Treasurer and Investment Committee may ask for more presentation materials

from the finalists for this board meeting, e.g. review of the current IPS, and any updated

fee schedules and a transition timeline. This is often a good opportunity to present the IPS

to the group of finalists selected to get feedback and a sense of their willingness to comply

to the board’s investment policies or possibly assist in recommending improvements to it.

It is another opportunity for the RFP finalists to walk thru all their services and share at

length their fee costs. The PSNT Executive Director, Treasurer and Investment Committee

will have previously screened the finalist candidates prior to the final RFP presentations.

The Treasurer and Investment Committee should be leading the board meeting in selecting

the winning RFP bid. The Executive Director should be prepared to answer any questions

about the organization and provide further details of what PSNT is looking for in the RFP

itself. During the RFP presentations, the secretary should be taking note/minutes for the

Board to review later. Once the presentations are completed, the PSNT Board of Trustees

should look to the Treasurer and Investment Committee for advisement on making a final

determination on the winning bid.

Once a finalist has been selected by the PSNT board. The Executive Director will

contact winning bidders to inform them of their winning proposal. A transition meeting

should be set up with the new group, the Executive Director and likely the Treasurer to

review next steps, consultant contracts and finalizing a transition plan.

Once an agreement is signed with the new agent. The old agent should be

contacted with notice of termination or informed by the PSNT’s Executive Director that a

new agent has been hired to replace them. This should be a cordial call, particularly if old

agent is being terminated. The PSNT Director should handle the call diplomatically,

professionally and with sense of gratitude toward the former agent and their work. Then a

transition-planning phase can begin. The Executive Director with the assistance of the

newly hired agent(s) will organize a transition planning with the old agent to begin final

planning on transfer of control over the pooled trust assets.

24  

Conclusion:

Since April 3, 2019 it has been made crystal clear by the Social Security

Administration what PSNTs should expect in how they are expected to handle their trust

management duties and functions (see SSA POMS section SI 01120.225 Pooled Trusts

Management Provisions). It is not only clear that the PSNT must maintain ultimate

managerial controls over the pooled trust assets and investments, but the PSNT must

demonstrate those continued controls even through their hiring practices and oversight of

For-Profit entities, who must act in a subordinate role to the PSNT and its board.

Currently SSA is looking very closely at these 2012 POMS in their daily reviews of

PSNT Master Trust agreements. Hopefully, not too exhaustively as SSA initially claimed

in 2012. SSA wants to ensure that PSNTs are not falling out of compliance with Section SI

01120.225 Pooled Trusts Management Provisions as they review older master trust

documents. It is be expected that SSA in the future will continue to review these

management requirements closely and perhaps delve even further in to how PSNT handles

its managerial functions. It should also be expected that state Medicaid agencies, not from

section 1634 states, will be reviewing as closely the PSNT master trust documents to

ensure these 2012 SSA POMS provisions are in compliance as well.

How the bureaucrats will interpret the management provisions language requirements

written into a PSNT master agreement could likely add more insult than injury for some

time for PSNTs. These management provisions may add subjective opining from SSA

claims representatives and/or the Regional Chief Counsels about PSNT’s actual managerial

controls. Eventually all the PSNT organizations across the country will not only fully

understand these requirements on how to demonstrate their full Management controls over

the pooled trusts and will fall in line with SSA/Medicaid compliance offices. And then this

too shall pass.

But for now, it is strongly encouraged that PSNTs review carefully their own previously

excepted master trust documents as it pertains to their overall management provisions

under

25  

SSA POMS Section SI 01220.225 with regard to their delegation of duties to For-Profit

agents. It would also be recommended that a PSNT review all related corporate policies,

legal and financial agreements with these agents. That would include the PSNT’s board

bylaws, the investment policy statement, the contractual agreements between the PSNT

and their bank agents and/or investment advisors and any other fiscal agents to ensure they

meet these 2012 minimum management standards from SSA.

The PSNT today should take the necessary precautions in amending their master trust

document…as needed. It would also be best practice to ensure compliance with these SSA

POMS management provisions or any other provisions for pooled trusts and consider using

the actual language cited right in the POMS themselves. It is always hard for Social

Security to balk or question their own written rules and policies when a PSNT cities their

own master trust draft to the SSA POMS verbatim.

The Uniformed Prudent Investor Act (UPIA) is an important statute that a PSNT and

their investment committee should be well aware of as it protects the interests of a trustee.

For PSNT non-profits, it will provide guidance in making the right, prudent investment

decisions for the pooled trust beneficiaries. The UPIA should be the underlying basis for

the PSNT’s investment policies.

A PSNT cannot be successful without a strong board membership, particularly in

having board members with the critical financial background. A PSNT must utilize it’s

board members financial talents for their investment committee. This will help them

oversee the non-profit’s investment policy statement (IPS) and review and oversee the

duties and performances of their investment advisor’s/bank agent’s.

The investment advisors of a PSNT are required to follow a set of goals, objectives,

and rules (see UPIA) that are prescribed by the board and it’s investment committee under

the PSNT’s IPS. The investment advisor’s quarterly portfolio performance report is what

keeps the score on not only the investment performance of the pooled trust, but tracks the

investment manager’s performance and as critical their adherence to the PSNT’s IPS.

Long time PSNTs understand the value in their financial relationships developed over

years in securing a reliable, qualified investment manager/bank agent. These relationships

do not always last forever. It is important for a PSNT and it’s Executive Director to be

26  

prepared when that day comes, sometimes unexpectedly. Having a Request for Proposal

(RFP) document ready and prepared is important to finding the next talented advisor or

bank agent for the PSNT. A PSNT needs to be clear within their objectives on who they

are looking for as their next agent drafted into the RFP. The Request for Proposal (RFP)

bidding process done right with the guidelines provided herein will make the PSNT look

good in doing their due diligence to finding their next professional agent that is the right fit

for the organization.

It is also important to know where to look to find pooled trust service providers. An

example could be the national PSNT listserv run by the “Grand Poo bah”, Steve Dale or

perhaps attending the National Conference on Special Needs Planning and Special Needs

Trusts run by Stetson University College of Law and visiting vendors there for starters.

The addendums that follow here are written materials to offer guidance to PSNTs and

their Executive Directors. These templates are years in the making and include an

Investment Policy Statement (IPS) template, a Portfolio Performance sample report and a

Request for Proposal (RFP). These can be useful templates for a PSNT to use in reviewing

their own investment policy statements (IPS), portfolio reports in overseeing their investor

agents and a RFP template that can help find their next investment financial agent when

needed.

 

 

 

 

 

 

 

 

 

 

 

 

27  

Client XYZ PSNT      Addendum A 

Investment Policy Statement

I. Introduction

Client XYZ PSNT (hereafter referred to as the “Trust”) was created to provide elderly & disabled participants with supplemental income above and beyond government benefits received. The purpose of this Investment Policy Statement is to establish guidelines for the Trust’s investment portfolio (the “Portfolio”). The statement also incorporates accountability standards that will be used for monitoring the progress of the Portfolio’s investment program and for evaluating the contributions of the manager(s) hired on behalf of the Trust and its participants.

II. Role of the Audit & Finance Committee

The Audit & Finance Committee (the “Committee”) is acting in a fiduciary capacity with respect to the Portfolio, and is accountable to the Board of Client XYZ, Inc. for overseeing the investment of all assets owned by, or held in trust for, the Portfolio.

A. This Investment Policy Statement sets forth the investment objectives, cash

flow policies, and investment guidelines that govern the activities of the Committee and any other parties to whom the Committee has delegated investment management responsibility for Portfolio assets.

B. The investment policies for the Trust contained herein have been formulated

consistent with the Trust’s anticipated financial needs and in consideration of the Trust’s tolerance for assuming investment and financial risk, as reflected in the majority opinion of the Committee.

C. Policies contained in this statement are intended to provide guidelines, where

necessary, for ensuring that the Portfolio’s investments are managed consistent with the short-term and long- term financial goals of the Trust. At the same time, they are intended to provide for sufficient investment flexibility in the face of changes in capital market conditions and in the financial circumstances of the Trust’s participants.

D. The Committee will review this Investment Policy Statement at least once per

year. Changes to this Investment Policy Statement can be made only by affirmation of a majority of Client XYZ, Inc.’s Board, and written confirmation of the changes will be provided to all Committee members, to all parties hired on behalf of the Portfolio, and to all participants in the Portfolio as soon thereafter as is practical.

28  

III. Role of the Investment Consultant The Investment Consultant is an advisor to the Audit & Finance Committee but it does not provide discretionary investment management of Trust assets. The Consultant will provide the Committee advice concerning such global issues as allocation, style, cash flow, manager selection and performance consistent with the investment objectives, policies, guidelines and constraints as established in this statement. Specific responsibilities of the Investment Consultant include:

A. Advising the Committee regarding the selection of and allocation to asset and

style categories within the constraints of the Investment Policy.

B. Conducting Investment Manager searches when requested by the Committee.

C. Monitoring the performance of the Investment Manager(s) to provide the Committee with the ability to determine the progress toward the investment objectives.

D. Communicating matters of policy, manager research, and manager performance

to the Committee.

E. Reviewing the Trust’s investment history, historical capital markets performance and the contents of this Investment Policy Statement to any newly appointed members of the Committee.

IV. Role of the Investment Managers The Investment Managers are the persons or teams responsible for the separate accounts, mutual funds, or commingled trusts that comprise the Portfolio. They have full discretion to make all investment decisions for the assets placed under their jurisdiction, while observing and operating within all policies, guidelines, constraints, and philosophies as outlined in this statement unless governed by prospectus or separate trust document. Specific responsibilities of the Investment Managers of separate accounts, mutual funds, or commingled trusts include:

A. Discretionary investment management including decisions to buy, sell, or hold

individual securities.

B. Reporting, on a timely basis, quarterly investment performance results.

29  

C. Voting proxies.

V. Investment objective

A. The Trust is to be invested with the objective of preserving the long-term, real purchasing power of assets while providing distributions in support of Trust participants’ spending needs. The expectation over the long term (as defined as 20 years or greater) is for the Portfolio to achieve an annualized rate of return equal to or greater than the annualized return of the Consumer Price Index (U.S. inflation) plus 3%. The expectation in the short term (defined as 5 years) is for the Portfolio to achieve an annualized return equal to or greater than a passive benchmark (as defined in Section VII.A.2 of this document), with a 5-year standard deviation less than 10%. Distributions will come first from net investment income and cash, then from realized capital gains, and finally from the sale of investments if necessary.

VI. Portfolio Investment Policies

A. Asset allocation

The Committee recognizes that asset allocation is the most significant determinant of variation in long-term investment returns and portfolio asset value stability.

1. The Committee expects that actual returns and return volatility may vary from expectations and return objectives across short periods of time. While the Committee wishes to retain flexibility with respect to making periodic changes to the Portfolio’s asset allocation, it expects to do so only in the event of material changes to the Trust and its participants, and/or to the capital markets and asset classes in which the Portfolio invests.

2. Trust assets will be managed as a balanced portfolio composed of the four primary asset classes: equity, fixed income, alternatives and cash. Equity investments are utilized to maximize the long-term real growth of Portfolio assets, while the fixed income investments provide current income, return stability, protection from deflation, and possible protection against a prolonged decline in equity market values. In order to be defined as Equity or Fixed Income assets, a manager must maintain almost all of its holdings within the asset class it is to represent. Alternative investments may be defined as everything else that is not equity, fixed income, or cash. Typical examples include real estate investment trusts, master limited partnerships, managed futures, commodities, convertibles, currencies, and preferreds. Alternatives can also be strategies or multiple asset classes that managers combine in order to outperform adverse market conditions. Examples here include long/short, market neutral, absolute return, arbitrage, and non-correlation. Alternatives can provide the Portfolio additional sources of income, lower overall volatility, additional help in an inflationary

30  

environment, and the possibility of additional market value protection in severe corrections.

3. Outlined below are the long-term strategic asset allocation guidelines,

determined by the Committee to be the most appropriate, given the Trust’s long-term objectives and short-term constraints. Portfolio assets will, under normal circumstances, be allocated across the four primary asset classes (as described in Section VI.A.2) in accordance with the following guidelines:

Asset Class

Minimum

Maximum

Neutral Target

Public Equities 32% 48% 40% US Large Cap 15% 25% International 10% 20% Opportunistic 0% 15%Alternative Assets 8% 12% 10% Public Fixed Income 32% 48% 40% US Investment Grade 15% 48% Below Investment Grade 0% 12.5% Non US Fixed Income 0% 12.5% Cash 8% 12% 10%

4. Recommendations to change the primary asset class target allocations may

come from either the Committee or the Consultant, though final authority rests with the Committee. Changes to the allocation of more than 20% + or – in any asset class, regardless of the origin of the recommendation, would result in a revision of the Investment Policy Statement, and would require approval first by the Committee, and then, by the Client XYZ Board of Trustees.  

B. Diversification

Diversification across and within asset classes is the primary means by which the Committee expects the Portfolio to avoid undue risk of large losses over long time periods. To protect the Portfolio against unfavorable outcomes within an asset class due to the assumption of large risks, the policy will be to take reasonable precautions to avoid excessive investment concentrations. Specifically, the following guidelines will be in place:

1. With the exception of fixed income investments explicitly

guaranteed by the U.S. government, no single investment security shall represent more than 5% of total Portfolio assets.

2. No single investment pool or investment company (mutual fund) shall comprise more than 25% of total Portfolio assets.

31  

C. Rebalancing

The Portfolio will be rebalanced to its target allocation under the following procedures:

1. The Investment Consultant will review the Portfolio

semiannually (June 30 and December 31) to determine possible deviation from the target allocation. During each semiannual review, the following parameters will be applied: a) If any asset class within the Portfolio is more than 20% +

or - its target weight, the Portfolio will be rebalanced.

b) If any fund within an asset class is more than 10% + or – its target weight, the funds will be rebalanced.

2. The Investment Consultant will use cash flow from contributions

to, and distributions from the Portfolio to realign current weightings with the target Portfolio.

3. The Investment Consultant may provide a rebalancing recommendation at any time.

4. The Investment Consultant shall act within a reasonable period of time to evaluate deviation from these ranges.

D. Prohibited Transactions

Unless expressly authorized by the Committee, the Portfolio and its Investment Managers are prohibited as a primary investment strategy from:

1. Purchasing securities on margin or executing short sales.

2. Pledging or hypothecating securities, except for loans of

securities that are fully collateralized.

3. Purchasing or selling derivative securities for speculation or leverage.

4. Engaging in investment strategies that have the potential to amplify or distort the risk of loss beyond a level that is reasonably expected, given the objectives of their Portfolio.

VII. Monitoring portfolio investments and performance

The Committee will monitor the Portfolio’s investment performance against the Portfolio’s stated investment objectives. On a quarterly

32  

basis, it will review the Portfolio and its underlying investments as follows: A. The Portfolio’s composite investment performance net of all investment

management fees, custodial, and consulting fees will be judged against the following standards:

1. The Portfolio’s investment objective as stated in section V.

2. A primary policy benchmark consisting of the following

unmanaged market indexes weighted according to the target asset allocation: MSCI All Country World Index - 40% Hedge Fund Research Fund of Funds Composite Index – 10% Barclays Capital Aggregate Bond Index - 40% 90-Day Treasury Bill Index – 10%

3. A diversified benchmark comprised of the Trust assets’ underlying sub-asset class allocation weights.

B. The performance of professional investment managers hired on behalf of the Portfolio will be judged against the following standards:

1. A market-based index appropriately selected or tailored to the

manager’s agreed-upon investment objective and the normal investment characteristics of the manager’s portfolio.

2. A peer group appropriately selected for each manager containing other managers of similar holdings, investment style, and characteristics.

3. Performance rank shall be above the median peer manager for three and five year periods.

4. Manager’s three and five year alpha vs. the median peer manager

shall be positive.

5. Managers’ three and five year alpha vs. the benchmark shall be positive.

6. The most senior manager will have tenure of at least two years,

and invests his/her own money in the portfolio they manage.

C. In keeping with the Portfolio’s overall long-term financial objective, the Committee will evaluate Portfolio and manager performance over a suitably long-term investment horizon, generally across full market cycles or, at a minimum, on a

33  

rolling five-year basis.

D. In order to facilitate the review, the Investment consultant will provide to the Committee the appropriate reports on a quarterly basis or more frequently as requested by the Committee.

This statement of investment policy is adopted on (insert date) by Client XYZ, Inc. Board.

______________________________________

John Doe, President & CEO

Client XYZ, Inc.

______________________________________

Jane Doe, Chairperson of the Board

Client XYZ, Inc.

______________________________________

James Doe, Executive Director Client XYZ, Inc.

 

 

 

    

34  

                                                

   Addendum B 

 

Investment Performance Analysis September 30, 2018

        

Ken Dorger, Co-President Andy Dunlap, Vice President

211 Garrard Street Covington, KY 41011

P 859-491-5556 www.fourthst.com

35  

   

Table of Contents    

Tab Page   

Market Summary 1 1-3   

Executive Summary 4   

Investment Performance 5   

Asset Mix 6-8   

Summary of Asset Flows 9   

Investment Manager Scorecard 10   

Composite Statistics 11   

Manager Summaries 2 12-24   

IPS Adherence 25   

Footnotes 26   

Investment Policy Statement 3 - Redline

1  

Ret

urns

Ret

urns

R

etur

ns

  

Quarterly Market Review Third Quarter 2018

 Developed global equity markets posted positive results in the third quarter as

investors shrugged off trade tensions and focused on robust U.S. economic data, and solid corporate profits. Domestic equity indexes were positive across all market capitalizations and styles, but solid earnings propelled mega-cap stock returns to the forefront. The S&P 500 hit record highs during the quarter and added +7.7%, the strongest quarterly gain for

  

Last

Quarter

  Year to

Date

the index since 2013. Developed international equities gained +1.4% during the quarter but trailed domestic equities by a significant margin for the quarter and thus far this year. Emerging market equities saw another quarter of turbulence as the MSCI EM Index fell - 1.1% in response to tighter U.S. monetary policy, a strong dollar, slower economic growth relative to the U.S., and trade concerns.

The low quality rally in fixed income persisted as high yield bonds led the way, returning +2.4% as U.S. investment-grade bonds (+0.0%) were flat. Interest rates continued to trend higher and the yield curve flattened further, with the 10-year U.S. Treasury yield ending the quarter at 3.06%, up from June’s close of 2.85%. As expected, the Federal Reserve raised the Federal Funds target rate range to 2.00 - 2.25% in September and anticipates one more hike in 2018. An additional three rate raises are expected in 2019. With a strong U.S. economy and inflation hitting targets, the Fed removed language stating that the interest rate policy would remain “accommodative”.

S&P 500 7.7% 10.6%

MSCI EAFE 1.4% (1.4%)

BB Aggregate 0.0% (1.6%)

3 Month T-Bill 0.5% 1.3%

 

Domestic Equity Market   

•Domestic equities hit record highs in the third quarter as all market capitalizations experienced positive results. Large-cap stocks were the strongest performers, up +7.4%, followed by mid-cap and small-cap equities (+5.0% and +3.6%, respectively).

•Momentum in growth-style equities continued across all capitalizations. The Russell 1000 Growth Index was up +9.2% while the Russell 1000 Value Index rose by +5.7%. Year-to-date, large cap growth has outperformed value by 13.2% relative to large cap value.

•The S&P 500 forward P/E ratio rose to 16.8x, ahead of its 25-year average. The Shiller normalized P/E ratio rose modestly to 33.2x, up from 32.1x at the end of the second quarter.

•Headline inflation readings fell modestly, with an annualized rate of +2.7% through August. With a low unemployment rate at 3.9%, wage growth is starting to pick up, rising +2.8% in August. The final reading of second quarter GDP was left unrevised at +4.2%, powered

 

25.0%  

  20.0%  

  15.0%  

  10.0%  

  

5.0%  

  

0.0%

 

          9.6

            7.7

            7.3

           8.8

          10.6 10.5

   20.8 20.5

 17.9 17.6

    

 17.3 17.3

       14.6

 

       13.9 13.6

      16.4

 DJ:30 Industrials

S&P:500

Wilshire:5000  

 16.9 16.9

 

  

12.2 12.0 12.0

by robust consumer spending. The Fed expects +4.1% GDP growth in the third quarter.

Last

Quarter

Year to Last Year

Date

Last 3

Years

Last 5

Years

Last 7

Years

Last 10

Years

   

20.0%

 

Large-Cap vs. Small-Cap

Returns Ending September 30, 2018

   30.0%

 

Growth vs. Value

Returns Ending September 30, 2018

 

  

15.0%  

  

10.0%

Russell:1000 Index

Russell:Midcap Index

Russell:2000 Index

  

11.5

10.5

17.8    14.0

  15.2

 17.1

 

  14.5

 17.1

   13.7

 

    11.7

11.1

 16.9  

16.1

 16.4

    12.1 12.3

     11.1

 25.0%  

 20.0%  

 15.0%

 

    17.1

26.3    20.6

      13.6

     16.6

Russell:1000 Growth

Russell:1000 Value

  18.7

 15.0

14.3

 

  

5.0%

 7.4   5.0

   3.6

 7.5  

10.0%  

 5.0%

 9.2

   5.7

 

   3.9

 9.5

 10.7  

9.8

 0.0%  

Last

Quarter

 Year to Last Year

Date

 Last 3

Years

 Last 5

Years

 Last 7

Years

 Last 10

Years

0.0%  Last

Quarter

 Year to Last Year

Date

 Last 3 Years

 Last 5 Years

 Last 7 Years

 Last 10 Years

2  

5.2

2)

Ret

u rn s

Ret

urns

Sectors of the Market  

Financials Technology Health Care Indus trials Energy Cons umer

Dis cretionary

Cons umer Staples

Communication Services

 

Utilities Real Es tate Materials

S&P Weight 13.3% 21.0% 15.0% 9.7% 6.1% 10.3% 6.7% 10.0% 2.8% 2.7% 2.4% Rus s ell Growth Weight 4.2% 32.6% 13.8% 12.0% 0.9% 15.4% 5.4% 12.0% 0.0% 2.0% 1.7% Rus s ell Value Weight 22.8% 9.8% 15.2% 8.1% 10.8% 5.3% 7.2% 6.8% 5.6% 4.6% 3.9% Third Quarter 2018 Return 4.4% 8.8% 14.5% 10.0% 0.6% 8.2% 5.7% 9.9% 2.4% 0.9% 0.4% YTD Return 0.1% 20.6% 16.6% 4.8% 7.5% 20.6% (3.3%) 0.8% 2.7% 1.7% (2.7%)

 

•All sectors ended the quarter in positive territory. Notable outperformers include defensive sectors such as Health Care (+14.5%) and Industrials (+10.0%), and the new Communication Services sector (+9.9%) also surged. This new GICS sector includes noteworthy names such as Facebook, Alphabet, and Netflix, and is a consolidation of stocks from the technology and consumer discretionary sectors as well as the former telecommunications sector to reflect the evolution of the tech, media, and consumer industries. It is the most significant overhaul to the GICS sectors since their inception in 1999.

•With the exception of oil, commodities fell during the quarter in response to trade concerns. Oil prices ended modestly unchanged $73/barrel but are expected to tick higher in response to strong global demand and short supply due to various geopolitical factors.

•The weakest performers in the index were the Materials (+0.4%), Energy (+0.6%), and Real Estate (+0.9%) sectors.  

 

International Markets  

15.0%    

10.0%

 

 12.4

  9.2

 

   10.0

     8.3

     8.3

 

•International equity markets underperformed U.S. markets for the fourth straight quarter due to slower economic growth, a strong U.S. dollar, and ongoing trade tensions. The MSCI ACWI ex US gained +0.7% in the quarter but is down -3.1% year-to-date.

 

  

5.0%    

0.0%

     1.4

    

 0.8 0.7

    2.7

 

    

1.8

 

 (0.3)

7.7  

  4.4

 

  

4.1 3.6 3.7

  5.0

7.2  

 5.4 5.4

4.9

•The worst performing equity index during the quarter was the MSCI Emerging Markets index, falling -1.1%. Turkey was the weakest performer, losing -20.7% during the quarter as its currency plummeted. China, the largest component of the emerging markets benchmark, fell -8.5% during the quarter as trade tensions continued. •Thailand (+12.9%) posted the strongest returns for the quarter as trade

 

 (5.0%)

(1.1) (1.4)  (2.5)

(3.1)

(0.8)  

MSCI:EAFE

MSCI:EM

MSCI:Europe

MSCI:ACWI ex US

worries were offset by a spike in crude oil prices. •Japan returned +2.9% for the quarter as investor optimism drove gains. •Eurozone markets gained +0.8% but underperformed in response to budgetary concerns from Italy and Greece as well as slower GDP

 (10.0%)

  

Last

Quarter

(7.7)  

 Year to Last Year

Date

  Last 3

Years

  Last 5

Years

  Last 7

Years

  Last 10

Years

growth relative to the U.S. •The European Central Bank announced plans to end bond purchases at the end of the year and held interest rates steady.

 

 

Fixed Income Markets  

 

•The Bloomberg Barclays Aggregate Index, measuring U.S. investment grade bonds, returned +0.0% for the quarter. Interest rates rose again this quarter and the yield curve continued to flatten.

•The 10-year U.S. Treasury yield ended the quarter at 3.06%, a 16 bps increase from the end of the second quarter. The spread between the 10-year yield and 2-year yield continued to tick lower, ending the quarter at 24 bps.

12.5%  

 10.0%  

 7.5%

 

 5.0%

 

        2.9

 

   8.2

       4.8

      5.5

 

       4.2

   

 7.6

       4.8

        3.8

 

        3.2

 

  9.4

     6.8

•High yield bonds (+2.4%) were the strongest quarterly performers. Corporates (+1.0%) outpaced U.S. treasuries (-0.6%).

•U.S. dollar-denominated emerging market debt fell -0.1% in the quarter, impacted by relative U.S. dollar strength, rising interest rates, and geopolitical concerns.

•As expected, the Federal Reserve raised the Federal Funds rate by a quarter point to a range of 2.00% - 2.25%, with one additional rate increase expected this year and three more next year. The Fed also removed language stating that the interest rate policy would remain

2.5%

0.0%

(2.5%)

(5.0%)

(7.5%)

  0.0 0.2

2.4 2.5

1.5  

  

(0.8) (1.

(1.0) (1.6)

 

 (4.7)

       

 (5.0)

 1.3  0.9

2.2 2.0 1.5 1.6

 

   

Blmbg:Aggregate

Blmbg:Int Gov/Cred

ML:US High Yield Mastr II

JPM:EMBI Plus

“accommodative”, indicating a shift toward active tightening. Last Quarter

Year to Last Year Date

Last 3 Years

Last 5 Years

Last 7 Years

Last 10 Years

3

 

   

Comparative Market Returns Average

Annual Compound Returns (%) for

Periods Ending September 30, 2018  

   U.S. Large Cap Equity

Last

Quarter

Year to

Date

Last

Year

Last 2

Years

Last 3

Years

Last 4

Years

Last 5

Years

Last 6

Years

Last 7

Years

Last 8

Years

Last 9

Years

Last 10

Years

Last 15

Years

S&P:500 7.71 10.56 17.91 18.26 17.31 12.55 13.95 14.83 16.91 14.81 14.29 11.97 9.65

S&P:500 Growth 9.28 17.24 25.21 22.53 19.88 15.35 16.57 16.64 18.41 16.63 16.07 14.05 10.49

S&P:500 Value 5.86 3.51 10.06 13.22 14.13 9.22 10.88 12.68 15.11 12.72 12.25 9.62 8.61

 

DJ:30 Industrials  

9.63  

8.83  

20.76  

23.09 20.49 14.39 14.57 14.74 16.35  

14.71  

14.64 12.22 9.97

Russell:3000 Index 7.12 10.57 17.58 18.14 17.07 12.41 13.46 14.78 16.86 14.69 14.27 12.01 9.86

 

Russell:1000 Index  

7.42  

10.49  

17.76  

18.15 17.07 12.37 13.67 14.85 16.90  

14.77  

14.32 12.09 9.85

Russell:1000 Growth 9.17 17.09 26.30 24.10 20.55 15.95 16.58 17.03 18.69 16.72 16.26 14.31 10.67

Russell:1000 Value 5.70 3.92 9.45 12.25 13.55 8.76 10.72 12.57 15.02 12.76 12.32 9.79 8.89

 

Mid Cap Equity S&P:400 Mid Cap

  

3.86

  

7.49

  

14.21

  

15.85  

15.68  

11.93  

11.91  

14.39  

16.31

  

13.95

  

14.37  

12.49  

11.20

Russell:2500 Index 4.70 10.41 16.19 16.99 16.13 11.98 11.37 14.25 16.49 13.97 14.19 12.02 10.71

Russell:2500 Growth 7.17 15.78 23.13 21.59 17.96 14.12 12.88 15.86 17.72 15.43 15.63 13.61 11.26

Russell:2500 Value 2.67 5.75 10.24 12.96 14.51 10.02 9.99 12.74 15.33 12.61 12.85 10.53 10.01

 

Small Cap Equity S&P:600 Small Cap

  

4.71

  

14.54

  

19.08

  

20.06  

19.41  

15.30  

13.32  

16.17  

18.48

  

16.03

  

15.83  

12.86  

11.86

Russell:2000 Index 3.58 11.51 15.24 17.96 17.12 12.93 11.07 14.03 16.43 13.72 13.68 11.11 10.12

Russell:2000 Growth 5.52 15.76 21.06 21.02 17.98 14.33 12.14 15.38 17.52 15.01 14.99 12.65 10.61

Russell:2000 Value 1.60 7.14 9.33 14.80 16.12 11.41 9.91 12.60 15.26 12.36 12.31 9.52 9.50

 

Global Equity MSCI:ACWI

  

4.28

  

3.83

  

9.77

  

14.13  

13.40  

8.01  

8.67  

10.13  

11.62

  

9.24

  

9.15  

8.19  

8.13

MSCI:ACWI ex US 0.71 (3.09) 1.76 10.33 9.97 3.96 4.12 6.09 7.25 4.80 5.11 5.18 7.20

MSCI EAFE US$ (net) 1.35 (1.43) 2.74 10.62 9.23 4.46 4.42 7.42 8.30 5.92 5.62 5.38 6.80

MSCI EAFE Growth 1.53 0.58 5.85 10.66 10.26 6.33 5.62 8.38 9.27 6.83 7.01 6.20 7.20

MSCI EAFE Value 1.18 (3.49) (0.36) 10.50 8.12 2.52 3.14 6.39 7.26 4.93 4.18 4.49 6.31

 

MSCI:Europe  

0.80  

(2.46)  

(0.30)  

10.42 7.71 3.17 3.70 6.87 8.30  

5.56  

5.23 4.85 6.85

MSCI:Pacific 2.28 0.21 8.22 11.18 12.35 7.02 5.77 8.51 8.40 6.73 6.52 6.55 6.67

 

MSCI:EM  

(1.09)  

(7.68)  

(0.81)  

10.21 12.36 3.44 3.61 3.17 5.03  

2.12  

3.99 5.40 9.65

 

Fixed Income Blmbg:Aggregate

  

0.02

  

(1.60)

  

(1.22)

  

(0.57)  

1.31  

1.72  

2.16  

1.51  

2.02

  

2.42

  

3.05  

3.77  

3.78

Blmbg:Int Gov/Cred 0.21 (0.76) (0.96) (0.37) 0.91 1.35 1.52 1.18 1.63 1.85 2.49 3.22 3.23

Blmbg:Gov/Credit 0.06 (1.85) (1.37) (0.69) 1.45 1.77 2.23 1.52 2.10 2.47 3.15 3.95 3.75

Blmbg:Long Gov/Credit (0.47) (5.42) (2.73) (1.76) 3.43 3.34 5.18 2.80 3.94 5.00 5.93 7.11 5.95

 

Blmbg:Muni 10 Yr  

0.06  

(0.66)  

(0.14)  

0.31 2.18 2.52 3.42 2.62 3.41  

3.59  

3.92 4.91 4.34

ML:US High Yield Cash Pay 2.44 2.50 2.89 5.93 8.17 5.12 5.52 5.77 7.54 6.75 7.99 9.30 7.58

JPM:EMBI Plus 1.48 (4.70) (5.01) (1.15) 4.81 3.35 4.24 2.47 4.85 4.40 5.64 6.84 7.22

 

ML:US Treasuries 1-3 Yrs  

0.19  

0.29  

0.04  

0.14 0.38 0.58 0.56 0.53 0.53  

0.62  

0.83 1.09 1.90

3 Month T-Bill 0.49 1.30 1.59 1.12 0.84 0.63 0.52 0.45 0.39 0.36 0.34 0.34 1.30

CPI (All Urban Cons.) 0.56 2.79 2.67 2.45 2.12 1.58 1.59 1.52 1.59 1.87 1.79 1.48 2.11

 

Alternatives HFR Fund of Funds Index

  

0.76

  

1.45

  

3.54

  

5.01  

3.44  

2.56  

3.27  

3.80  

3.67

  

2.97

  

3.03  

2.61  

3.36

Blmbg:Commodity Price Idx (2.53) (3.36) 0.88 (0.08) (1.00) (7.95) (7.69) (8.84) (6.87) (6.04) (4.40) (6.55) (2.31)

GS Commodity Index 1.34 11.84 22.91 11.85 3.17 (10.56) (10.01) (9.06) (6.22) (5.13) (4.14) (9.24) (2.28)

Wilshire:REIT 0.72 2.25 3.99 2.03 7.08 8.21 9.25 8.57 11.70 10.45 12.48 7.38 9.36

 

Pooled Trusts Executive Summary

 

Third Quarter 2018 Investment Results   Client XYZ PSNT gained 1.9% in the third quarter, net of all fees and expenses. The

Pooled Trusts outperformed the Policy Balanced Index (+1.4%) and performed in line with the Diversified Balanced Index (+1.9%) in the quarter. Year to date, the Pooled Trusts have gained 0.4% and have underperformed both the Policy Balanced Index (+0.9%) and the Diversified Balanced Index (+1.7%). Since the inception of the portfolio nearly seven years ago, the Pooled Trusts have compounded capital at a rate of 5.2%, net of fees. Over this period the Pooled Trusts have outperformed the Policy Balanced Index (+5.0%) as well as the inflation plus 3% target (+4.6%).

  In the second quarter, the Pooled Trusts outperformed the policy balanced index primarily due

to strong relative gains from the alternative portfolio. FPA Crescent gained +4.1% while WHG Income Opportunity gained +3.1% before being redeemed in late-August. In comparison the HFR Fund of Funds Index gained just 0.4%. New alternative manager Chicago Equity Partners had a nice quarter and gained 4.7%, despite declining 0.3% in September. Both alternative managers employ portfolio allocations of roughly 65% stocks with the remainder in cash or bonds.

  Additional outperformance was attributable to the fixed income managers. Baird and

Vanguard Total Bond performed in line with the Barclays Aggregate Bond Index (+0.0%), but the higher yielding bond managers, Fidelity and Vanguard High Yield performed well in the quarter. Fidelity’s portfolio of emerging market bonds gained 1.1% while Vanguard High Yield had a strong quarter and gained 2.7%. Another relative contributor in the third quarter for the portfolio’s overweight to U.S. stocks relative to international stocks.

  Detracting from relative performance in the quarter were international equities which fell -

0.8% while the MSCI EAFE index added +1.4%. Europacific Growth underperformed due to emerging markets exposure. Specifically, Chinese technology stocks, which had been beneficial to the portfolio for much of the past 18 months, began to sell off in September. Europacific Growth has a 33% exposure to emerging markets. Schwab International, with its value bias, declined -0.4%. Vanguard emerging markets index declined -1.7%.

 

As a reminder, the portfolio underwent a modest transition in late August. The portfolio increased exposure to stocks from 30% to 40% while conversely reducing exposure to Alternatives by 5% and Fixed Income by 5%. Additionally, the manager lineup in the portfolio was altered in order include modestly more aggressive funds. The Vanguard Dividend Appreciation Index fund was liquidated and replaced with the Primecap Odyssey Growth Fund and the Delaware Value fund. Both new funds are large cap U.S. equities with one being focused on growth stocks (Primecap) and the other focused on value stocks (Delaware). Diamond Hill was removed from the portfolio and replaced with he Vanguard Explorer Value fund. This fund is a small cap value U.S. equity portfolio subadvised by two investment management firms, Cardinal Capital and Frontier Capital. Finally, in alternatives, the WHG Income Opportunity Fund was replaced with the AMG Chicago Equity Partners Balanced fund. This new fund will have a similar risk profile (65% stocks, 35% fixed income).

4

5 

     

 Last

Quarter

Performance Summary Table (Net of Fees) for Periods Ending September 30, 2018

Inception

Year to Date Last Year Last 3 Years Last 5 Years Date

     

 Since

Inception

      

% of Portfolio

Client XYZ PSNT 1

Policy Balanced Index 2

Diversified Balanced Index 3

7.3% 7.3% 1.4% 4.7% 3.3% 11/1/11 4.8 6.5 6.5 2.9 4.8 3.5 [11/1/11] 4.8 7.1 7.1 3.2 5.6 4.0 [11/1/11] 5.2

100%

CPI + 3% 1.9 1.9 4.9 5.2 4.5 [11/1/11] 4.6

 Public Equities

Domestic Equity Composite 12.4 12.4 6.0 11.3 8.8 11/1/11 11.2 S&P:500 13.6 13.6 9.5 13.5 10.9 [11/1/11] 14.0

Vanguard 500 Index;Adm 13.6 13.6 9.5 13.5 10.9 11/1/11 14.0

PRIMECAP:Odyssey Growth 12.5 12.5 (0.6) 16.9 12.3 12/1/04 11.0 Russell:1000 Growth 16.1 16.1 12.7 16.5 13.5 1/1/79 11.4

Delaware Value;Inst 10.2 10.2 8.0 11.1 9.0 10/1/98 8.0 Russell:1000 Value 11.9 11.9 5.7 10.5 7.7 1/1/79 11.9

Vanguard Explorer Va;Inv 12.8 12.8 (1.9) 9.4 6.0 4/1/10 11.1 Russell:2000 Value 11.9 11.9 0.2 10.9 5.6 [4/1/10] 9.5

Russell:2000 Index 14.6 14.6 2.0 12.9 7.1 [4/1/10] 11.0

International Equity Composite 11.9 11.9 (6.7) 6.6 2.1 11/1/11 5.8 MSCI:EAFE 10.0 10.0 (3.7) 7.3 2.3 [11/1/11] 5.9

MSCI:ACWI 12.2 12.2 2.6 10.7 6.5 [11/1/11] 9.1

Europacific Growth 13.2 13.2 (4.7) 9.2 4.2 11/1/11 7.4

Schwab Intl Core Equity 10.9 10.9 (8.7) -- -- 3/1/17 3.4 MSCI:EAFE 10.0 10.0 (3.7) 7.3 2.3 [3/1/17] 6.3

Vanguard Emerging Mkts. 11.3 11.3 (6.8) -- -- 3/1/18 (7.4) MSCI:EM 9.9 9.9 (7.4) 10.7 3.7 [3/1/18] (8.4)

 Alternative Assets

Alternative Assets Composite 9.3 9.3 4.2 6.9 2.3 9/1/12 2.7 4

Alternative Assets Benchmark 4.6 4.6 0.1 3.9 (1.0) [9/1/12] (0.4)

FPA Crescent 10.8 10.8 3.6 7.7 5.0 11/1/11 8.0 HFRI:FOF Index 4.6 4.6 0.1 3.9 2.2 [11/1/11] 3.2

AMG CEP Balanced;I 7.4 7.4 4.2 8.2 6.8 12/1/12 8.4 HFRI:FOF Index 4.6 4.6 0.1 3.9 2.2 [12/1/12] 3.4

 Public Fixed Income

Core Fixed Income Composite 3.1 3.1 4.5 2.3 2.7 11/1/11 3.2 Blmbg:Aggregate 2.9 2.9 4.5 2.0 2.7 [11/1/11] 2.5

Vanguard Total Bond 2.9 2.9 4.5 -- -- 9/1/16 1.2 Blmbg:Aggregate 2.9 2.9 4.5 2.0 2.7 [9/1/16] 1.3

Baird Aggregate Bd;Inst 3.3 3.3 4.6 2.5 -- 11/1/14 2.7 Blmbg:Aggregate 2.9 2.9 4.5 2.0 2.7 [11/1/14] 2.4

Non-Core Fixed Income Comp. 7.2 7.2 2.8 6.4 4.7 11/1/11 5.8

 15.1%  8.7% 7.1%

 

 3.5%   

 13.6%  

  5.0%  5.1%  2.4%     10.0%  

5.0%

5.0%  

   27.5%  

 13.7%  13.8%  

  12.5%

Non-Core Fixed Inc. Benchmark 5

6.8 6.8 4.3 6.4 4.6 [11/1/11] 5.7

Fidelity New Mkts Inc 6.8 6.8 (0.4) 6.0 4.7 11/1/11 5.4 JPM:EMBI Plus 6.2 6.2 2.6 4.0 4.5 [11/1/11] 4.7

Vanguard High Yield Corp 7.6 7.6 6.0 6.8 4.6 11/1/11 6.1 ML:US Hi Yld BB-B N-Dist 7.3 7.3 6.4 7.3 4.8 [11/1/11] 6.5

 Baird Ultra Short Bd;Inst 1.0 1.0 2.7 -- -- 12/1/16 1.9

3 Month T-Bill 0.6 0.6 2.1 1.2 0.7 [12/1/16] 1.4

6.3%  6.3%  

   5.1%

 *Footnotes can be found on page 26.

6 

Pooled Trusts Asset Mix September 30, 2018

  

   Domestic

Equity Int'l

Equity Alternative Investments

Fixed Income

 Cash

   

 Total

% of Total

Vanguard S&P 500 $1,532,562 - - - -   $1,532,562 10.1%

Primecap Odyssey Growth $762,387 - - - -   $762,387 5.0%

Delaware Value $776,687 - - - -   $776,687 5.1% Vangaurd Explorer Value $749,334 - - - -   $749,334 4.9%

Europacific Growth - $937,149 - - -   $937,149 6.2%

Schwab International - $946,970 - - -   $946,970 6.3%

Vanguard Emerging Markets - $366,889 - - -   $366,889 2.4%

FPA Crescent - - $758,915 - -   $758,915 5.0% AMG Chicago Equity Partners - - $760,867 - -   $760,867 5.0%

Vanguard Total Bond Index - - - $2,081,658 -   $2,081,658 13.7%

Baird Aggregate Bond - - - $2,084,500 -   $2,084,500 13.8%

Vanguard High Yield Bond - - - $947,481 -   $947,481 6.3%

Fidelity New Markets Income - - - $953,740 -   $953,740 6.3% Baird Ultra Short Fund - - - $760,485 -   $760,485 5.0%

Cash - - - - $731,640   $731,640 4.8%

Total $3,820,970 $2,251,008 $1,519,782 $6,827,864 $731,640   $15,151,264 100%

% of Total 25.2% 14.9% 10.0% 45.1% 4.8%   100%  

   

Special Needs $12,878,308

Third Party $2,272,956

         

 Fi xe d In come

45.0%

Cas h 4.9%

 Dom e stic Equ i ty 25.2%

       

 In te rnational

Equ i ty 14.9%

  Al te rnative s

10.0%

        

 Fi xe d In come

45.3%

Cas h 4.7%

 Dom e stic Equ i ty 25.2%

       

 In te rnational

Equ i ty 14.8%

   Al te rnative s

10.0%  

 *Cash values include mutual fund dividends paid at quarter-end that were accounted for by Custodial Bank ABC in the beginning of the next quarter.

7 

Client XYZ PSNT Composite Portfolio

  

Summary of Asset Flows June 30, 2018 – Sept. 30, 2018

 

 Cash   Fixed Income   Alternatives   Equity   Total

 Beginning Market Value $ 1,411,226 $ 6,756,227 $ 2,313,083 $ 4,883,351 $ 15,363,888  

Contributions $ 575,039 $ - $ - $ - $ 575,039  

Withdrawals $ 659,940 $ 49,494 $ 27,616 $ 122,908 $ 859,958 

Realized Gains/Losses $ - $ (242) $ 384 $ 1,547 $ 1,689  

Unrealized Gains/Losses $ 757 $ (90,400) $ 6,651 $ (78,938) $ (161,930)  

Interest Income $ 6,127 $ - $ - $ - $ 6,127  

Dividends Income $ - $ 32,994 $ 4,916 $ 49,258 $ 87,168  

Ending Market Value $ 1,333,209 $ 6,649,085 $ 2,297,418 $ 4,732,310 $ 15,012,023  

Gains/Losses $ 6,884 $ (57,648) $ 11,951 $ (28,133) $ (66,946)  

% Gain 0.49% -0.85% 0.52% -0.58% -0.44%

 

Client XYZ PSNT Investment Manager Scorecard

   

 Managers

 

 % of

Portfolio

Above Median

Peer Group 3 Years

Above Median

Peer Group5 Ye ars

Positive Alpha

Benchmark3 Years

Positive Alpha Peer

Group 3 Years

Positive Alpha

Benchmark5 Years

Positive Alpha Peer

Group 5 Years

Watch List

Status

# of Qtrs on

Watch List

ExpenseRatio %

< Median

Peer

 Management

Changes/ Comments

 

Vanguard S&P 500 Index  

8.7%  

YES  

YES NO YES NO YES NO  

N/A  

YES Index Fund

  

6 .7% 35* 44*                 

Vanguard Div. Apprec.  

7.1%  

YES  

NO YES YES NO NO NO  

N/A  

YES  

    42 67                 

Diamond Hill Sm. Cap  

3.5%  

NO  

NO YES YES YES YES NO  

N/A  

YES Fund is closed to new

investors

    91 82                 

Europacific Growth  

5.1%  

YES  

YES YES YES YES YES NO  

N/A  

YES  

    18 14                 

Schwab Core International  

5.0%  

YES  

YES YES YES YES YES NO  

N/A  

YES  

    37 18                 

Vanguard Emerging Mkts  

2.4%  

NO  

NO NO NO NO NO YES  

N/A  

YES Index Fund

    78 61                 

FPA Crescent Fund  

7.7%  

YES  

NO YES NO YES NO NO  

N/A  

NO  

    48 54                 

WHG Income Opportunity  

7.6%  

NO  

NO YES NO YES NO YES  

N/A  

YES Lead Portfolio Manager

M ark Freeman announced his resignation

    79 88                 

Vanguard Total Bond  

16.0%  

YES  

YES NO YES NO YES NO  

N/A  

YES Index Fund

    27 23                 

Baird Aggregate Bond  

16.0%  

YES  

YES YES YES YES YES NO  

N/A  

YES  

    13 9                 

Vanguard High Yield Bond  

6.2%  

YES  

YES NO YES YES YES NO  

N/A  

YES  

    25 18                 

Fidelity New Markets Inc.  

6.0%  

YES  

YES YES YES YES YES NO  

N/A  

YES  

    18 10                

*Peer Ranking  

       

8

 

  12.5

10.0

7.5

5.0

2.5

  0.0

Sm

all

Lar

ge

Ret

urns

Client XYZ PSNT for Periods Ended September 30, 2018

Group: Callan Domestic Balanced Conservative MF  

          

(2.5)

 

  (50) (53)

     (82) (85)

  (65)

(72)

(46) (58)

 (48)

(58)

 

(48) (61)

 

Callan Dom Bal Cons MF Last Quarter Year to Date Last Year Last 3 Years Last 5 Years Since Inception

25th Percentile 2.67 3.27 6.25 8.18 5.57 7.20 Median 2.04 1.53 4.89 6.27 4.83 5.46

75th Percentile 1.41 1.05 2.51 5.15 3.47 4.57  

 Client XYZ PSNT 1.92 0.43 2.64 5.92 4.33 5.22

Client XYZ PSNT (Gross1) 2.06 0.82 3.18 6.47 4.88 5.78  

 Policy Balanced Index 1.46 0.84 3.07 5.19 4.42 5.11

 

  

Calendar Year Returns 2012 2013 2014 2015 2016 2017  

Client XYZ PSNT 9.80 (44) 6.94 (57) 4.13 (35) (1.40) (29) 6.04 (22) 9.80 (71)

Policy Balanced Index 7.14 (69) 8.63 (52) 5.94 (8) (1.11) (20) 3.76 (72) 9.70 (72)   

3 YEARS RISK STATISTICS 5 YEARS RISK STATISTICS  

Standard R- Standard R-

Deviation Alpha Beta Squared

Client XYZ PSNT 2.59 0.52 1.05 0.90  

 

Policy Balanced Index 2.39 0.00 1.00 1.00 Callan Dom Bal Cons MF 2.96 1.38 1.04 0.84

Deviation Alpha Beta Squared

Client XYZ PSNT 3.68 (0.31) 1.06 0.92  

 

Policy Balanced Index 3.33 0.00 1.00 1.00 Callan Dom Bal Cons MF 3.68 (0.39) 1.05 0.85

 

 

Style Map for Rolling 5 Years Ended 9/30/18 Risk vs. Return for 5 Years Ending 9/30/18  

100  

75  

50  

25

0

(25)

(50)

(75)

(100)

    Client XYZ PSNT

 

        Policy Balanced Index

7.0  

 6.0  

 5.0  

 4.0  

 3.0

    Policy Balanced Index

       Client XYZ PSNT   

Callan Dom Bal Cons MF

(100) (75) (50) (25) 0 25 50 75 100

Value Growth  

1

2.0  2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5

Standard Deviation 9

Client XYZ (Gross) return is before administrative fee (Bankers Trust) and investment advisor fee (Fourth Street).

9.0

8.0

6.5 7.0 7.5 8.0

Standard Deviation

8.5 9.0 9.5

Value Core Growth

13

 

Mic

ro

Sm

all

Mid

L

arge

M

ega

Ret

urns

Delaware Value;Inst

for Periods Ended September 30, 2018

Group: Callan Large Cap Value Mutual Funds  

 Total Expense Ratio

 Fund 0.70% Avg. Peer 0.95%

18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0

0.0

Callan Lg Cap Value MF Last Quarter Year to Date Last Year Last 3 Years Last 5 Years Last 7 Years Last 10 Years  

25th Percentile 7.46 7.60 14.55 15.33 11.52 15.49 10.43 Median 5.95 5.34 12.06 13.75 10.65 14.53 9.70

75th Percentile 4.96 3.86 9.90 12.90 10.02 13.73 8.34  

 Delaware Value;Inst 8.19 9.69 15.67 15.37 12.16 16.02 12.31

 

 Russell:1000 Value 5.70 3.92 9.45 13.55 10.72 15.02 9.79

 

Calendar Year Returns 2012 2013 2014 2015 2016 2017  

Delaware Value;Inst 14.48 (67) 33.44 (41) 13.69 (16) (0.35) (8) 14.78 (33) 13.64 (86)

Russell:1000 Value 17.51 (19) 32.53 (50) 13.45 (18) (3.83) (49) 17.34 (16) 13.66 (86)  

 3 YEARS RISK STATISTICS 5 YEARS RISK STATISTICS

 

Standard

Deviation R-

Alpha Beta Squared Standard

Deviation R-

Alpha Beta Squared

Delaware Value;Inst 6.69 2.90 0.91 0.53  

 

Russell:1000 Value 5.30 0.00 1.00 1.00 Callan Lg Cap Value MF 5.91 0.90 0.94 0.70

Delaware Value;Inst 8.05 2.52 0.89 0.76  

 

Russell:1000 Value 7.88 0.00 1.00 1.00 Callan Lg Cap Value MF 8.22 0.33 0.98 0.87

  

Style Map for Rolling 5 Years Ended 9/30/18 Risk vs. Return for 5 Years Ending 9/30/18  

 Delaware Value;Inst

13.0  

 12.0

   Delaware Value;Inst

 

  

Russell:1000 Value

 

 11.0  

 10.0

     Russell:1000 Value

 Callan Lg Cap Value MF

3.5Callan High Yield MFs

3.0

3.0 4.0 5.0

Standard Deviation

6.0 7.0

Short Core Long

22

 

  (27) 

(52) (31)

(15)

(10)  

(55) (70)

 

 

 

 

   

AA

AAgg

rega

te

Gov

t/Cre

dit

Cre

dit

Hig

h Y

ieldC

CC

Ret

urns

Vanguard HY Corp;Adm

for Periods Ended September 30, 2018

Group: Callan High Yield Mutual Funds   

 Total Expense Ratio

 Fund 0.13% Avg. Peer 0.94%

10.0  8.0

 6.0

 4.0

 2.0

 0.0

   

Callan High Yield MFs

(2.0)  

 Last Quarter Year to Date Last Year Last 3 Years Last 5 Years Last 7 Years Last 10 Years

 

25th Percentile 2.46 2.17 2.53 7.11 4.89 7.03 8.13 Median 2.18 1.78 2.09 6.46 4.39 6.43 7.65

75th Percentile 1.97 1.15 1.58 6.02 3.89 6.12 7.25  

 Vanguard HY Corp;Adm 2.67 1.56 1.67 6.42 5.24 6.85 8.05

 

 ML:US Hi Yld BB-B N-Dist 2.43 1.80 2.26 7.06 5.46 7.13 7.68

  

Calendar Year Returns 2009 2010 2011 2012 2013 2014 2015 2016 2017  

Vanguard HY Corp;Adm 39.27 (84) 12.53 (86) 7.24 (2) 14.47 (57) 4.64 (93) 4.69 (3) (1.30) (9) 11.30 (82) 7.13 (29)

ML:US Hi Yld BB-B N-Dist 30.22 (99) 13.93 (46) 5.72 (6) 14.38 (62) 6.19 (65) 3.70 (10) (0.91) (5) 12.72 (60) 7.03 (34)

 

 

3 YEARS RISK STATISTICS 5 YEARS RISK STATISTICS  

Standard R- Standard R-

Deviation Alpha Beta Squared

Vanguard HY Corp;Adm 3.42 (0.76) 1.03 0.98   

ML:US Hi Yld BB-B N-Dist 3.27 0.00 1.00 1.00 Callan High Yield MFs 3.95 (1.05) 1.11 0.89

Deviation Alpha Beta Squared

Vanguard HY Corp;Adm 3.71 0.26 0.90 0.95   

ML:US Hi Yld BB-B N-Dist 4.02 0.00 1.00 1.00 Callan High Yield MFs 4.76 (1.53) 1.12 0.93

 

 

Style Map for Rolling 5 Years Ended 9/30/18 Risk vs. Return for 5 Years Ending 9/30/18  

6.0   

 Vanguard HY Corp;Adm

  ML:US Hi Yld BB-B N-Dist

5.5

 5.0

 4.5

   Vanguard HY Corp;Adm

ML:US Hi Yld BB-B N-Dist

 4.0

 

Footnotes  

1 Client XYZ return data is presented net of all investment management fees, advisory fees and custodial fees.  

2 Policy Balanced Index is comprised of 40% MSCI All Country World Index, 10% Hedge Fund Research Fund of Funds Composite Index, 40% Bloomberg Barclays Aggregate Bond Index, and 10% 90 Day Treasury Bills from 8/31/18 to the present. From 8/31/15 to 8/31/18 the Policy Balanced Index is comprised of 30% MSCI All Country World Index, 15% Hedge Fund Research Fund of Funds Composite Index, 45% Bloomberg Barclays Aggregate Bond Index, and 10% 90 Day Treasury Bills from 8/31/15 to the present. From 7/31/12 to 8/31/ the benchmark consisted of 40% Barclays Gov/Credit Index, 5% Barclays High Yield Bond Index, 10% Citigroup 3 mo. T-Bills, 25% S&P 500 Index, 10% MSCI EAFE Index, 5% Dow Jones UBS Commodity Index, and 5% Dow Jones Wilshire REIT Index. From 10/31/11 through 7/31/12 the Balanced Index was comprised of 50% Barclays Interm. Gov/Credit Index, 20% Citigroup 3 mo. T-Bills, 10% Russell 1000 Value Index, 10% Russell 1000 Growth Index, 5% Russell 2000 Index, and 5% MSCI EAFE Index. Prior to June 30, 2010, the Balanced Index was comprised of 50% S&P 500 Index and 50% ML 1-3 Yr. Treasury Index.

 

3 The Diversified Balanced Index is comprised of 30% Barclays Aggregate Index, 20% S&P 500, 15% HFRI Fund of Funds Composite, 10% MSCI EAFE, 7.5% JP Morgan Emerging Market Bond +, 7.5% Merrill Lynch High Yield Master II, and 10% 90 day T-Bill from 8/31/2015 to 11/30/2015. From 11/30/2015 to 8/31/18, the benchmark consists of 30% Bloomberg Barclays Aggregate Index, 15% S&P 500, 15% HFRI Fund of Funds Composite, 10% MSCI EAFE, 7.5% JP Morgan Emerging Market Bond +, 7.5% Merrill Lynch High Yield Master II, 5% Russell 2000 Index, and 10% 90 day T- Bill. From 8/31/2018 to the present, the benchmark consists of 27.5% Bloomberg Barclays Aggregate Index, 20% S&P 500, 10% HFRI Fund of Funds Composite, 15% MSCI EAFE, 6.25% JP Morgan Emerging Market Bond +, 6.25% Merrill Lynch High Yield Master II, 5% Russell 2000 Index, and 10% 90 day T-Bill.

 4 Alternative Assets benchmark is comprised of 50% Bloomberg Commodities Index and 50% Dow Jones Wilshire REIT Index from August 2012 through August 2015. From August 2015 to the present the benchmark is 100% Hedge Fund Research Fund of Funds Composite Index.

 

5 Non-Core Fixed Income benchmark is comprised of 50% JP Morgan Emerging Markets Bond Index and 50% Merrill Lynch High Yield B-BB Index from November 2011 to the present.

 

6 Conservative Allocation is comprised of 5% Vanguard 500 Index;Adm, 2.5% Diamond Hill Small Cap;I, 5% FPA Crescent, 5% Westwood Income Opportunity;Inst, 2.5% American Funds EuroPacific Growth;F-2, 30% Baird Aggregate Bond;Inst, 30% Vanguard Total Bond;Adm, 5% Fidelity New Markets Income, 5% Vanguard High Yield Corporate;Adm, and 10% Citi 3 month T-bill from 1/1/2009 to the present, rebalanced annually.

 

7 Moderate Allocation is comprised of 10.5% Vanguard 500 Index;Adm, 5.5% Vanguard Dividend Appreciation Index;Inv, 5% Diamond Hill Small Cap;I, 7.5% FPA Crescent, 7.5% Westwood Income Opportunity;Inst, 3% American Funds EuroPacific Growth;F-2, 3% Harbor International;Inst, 17.5% Baird Aggregate Bond;Inst, 17.5% Vanguard Total Bond;Adm, 7% Fidelity New Markets Income, 7% Vanguard High Yield Corporate;Adm, and 9% Citi 3 month T-bill from 1/1/2009 to the present, rebalanced annually.

 

8 Growth and Income Allocation is comprised of 15% Vanguard 500 Index;Adm, 7.5% Vanguard Dividend Appreciation Index;Inv, 7.5% Diamond Hill Small Cap;I, 7.5% FPA Crescent, 7.5% Westwood Income Opportunity;Inst, 7.5% American Funds EuroPacific Growth;F-2, 7.5% Harbor International;Inst, 10% Baird Aggregate Bond;Inst, 10% Vanguard Total Bond;Adm, 8% Fidelity New Markets Income, 8% Vanguard High Yield Corporate;Adm, and 4% Citi 3 month T-bill from 1/1/2009 to the present, rebalanced annually.

 

9 Growth Allocation is comprised of 20% Vanguard 500 Index;Adm, 12.5% Vanguard Dividend Appreciation Index;Inv, 12.5% Diamond Hill Small Cap;I, 7.5% FPA Crescent, 7.5% Westwood Income Opportunity;Inst, 10% American Funds EuroPacific Growth;F-2, 10% Harbor International;Inst, 5% Baird Aggregate Bond;Inst, 5% Vanguard Total Bond;Adm, 3.5% Fidelity New Markets Income, 3.5% Vanguard High Yield Corporate;Adm, and 3% Citi 3 month T-bill from 1/1/2009 to the present, rebalanced annually.

 10 Vanguard Total Bond;Adm replaced PIMCO Total Return;Instl in all allocations from 8/31/2016 forward. Baird Ultra Sh Bd;Inst replaced half the Citi 3 month T-Bill allocation in all allocations from 11/30/2016 forward. 

14

 

Statement of Disclosures and Disclaimer Privacy Disclosure Notice While information is a very important aspect of our ability to provide superior service and advice, the foundation of our firm is our clients and the trust that they place in us. As a commitment to this foundation, keeping our clients’ information secure and using it only as our clients need us to are top priorities at Fourth Street Performance Partners, Inc. (“FSPP”).   

Types of Information We Collect  

We collect only the information necessary to consistently deliver responsive, high quality services and advice to our clients and to fulfill legal and regulatory requirements. In order to fulfill these obligations, we may collect nonpublic personal information about our clients from sources such as:

 

• Information regarding our clients’ financial position, tax identification numbers, home, business or e-mail addresses of senior executive personnel, trustees, board members or other information provided on contracts, financial statements or applications or other means of communication provided by our clients to us;

 

• Information regarding our clients’ assets or transactions with other investment advisors, custodial banks, FSPP, or other organizations.

  

Parties to Whom we Disclose Information  

Access to client or former client information is strictly limited. FSPP shares nonpublic information solely to service our clients. We do not disclose any nonpublic personal information about our clients or former clients to anyone, except as permitted by law.

 

We restrict access to nonpublic personal information about our clients to our employees who need to know that information in order to provide services to them. We further maintain physical, electronic, and procedure safeguards to guard our clients’ personal information.

  

Information Safeguarding  

FSPP will internally safeguard our clients’ nonpublic personal information by restricting access to only those employees who provide advice or services to our clients or to those who need access to our clients’ nonpublic personal information to service your relationship with us. In addition, we will maintain physical, electronic, and procedural safeguards that meet federal and/or state standards to guard our clients’ nonpublic personal information.

  

Disclosure of Notice of Availability of Form ADV- Part 2A  

Form ADV- Part 2A is a legal disclosure document that provides information about business practices, fees, and conflicts of interest an advisor may have with its clients. According to SEC Rule 204-3 of the Advisors Act, we are obligated to offer this document to all clients at least annually. If you wish to obtain a copy of FSPP’s Form ADV – Part II, please do not hesitate to contact our office at 211 Garrard Street, Covington, KY 41011.

  

Disclaimer  

The information contained in this analysis has been prepared by FSPP and is believed to be accurate based on the asset and transaction data reported to us by trustees, custodians, and/or investment managers retained by the client. Calculations are subject to the accuracy of the source data provided and are not warranted to be accurate or complete. This analysis may contain returns and valuations for prior periods provided by other service providers of the client. FSPP assumes no responsibility for the accuracy of these valuations or return methodologies.

  

Russell Indexes and Data  

Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company.

 

Russell Investment Group is the source and owner of the data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain confidential information and unauthorized use, disclosure, copying, dissemination, or redistribution is strictly prohibited. This is a user presentation of the data. Russell Investment Group is not responsible for the formatting or configuration of this material or for any inaccuracy in presentation thereof.

14   

 

 

 

Request for Proposal (Investment Advisor) (Addendum C)

Request for Proposal (RFP)

1. Profile XYZ Pooled Trust is a not-for-profit corporation that provides trustee services

to people with disabilities and their families managed through a pooled

investment portfolio. The pooled trust offers different types of special needs trust

options to its clients. Each beneficiary has their own separate subaccount while

all the investments are pooled together for management efficiency. The trust

currently serves has300 clients with approximately $18 million under

management.

The XYZ pooled trust is a benefit to people with disabilities and their

families because each subaccount serves a single beneficiary. The trust provides

supplemental care and additional service needs over and above what the public

benefit programs can offer. The pooled trust is a Medicaid qualified trust insuring

that key public benefit programs like SSI/Medicaid are not jeopardized through

the use of the trust.

XYZ Pooled Trust currently receives investment management and custodial

services from a single trust company. The firm manages each account as a

separate sub-account under a master control group. The same mutual funds and

asset allocation is used for all sub-accounts. When an investment allocation is

changed, all accounts are re-allocated en masse. When a sub-account is being

closed, its share of the mutual funds are sold and transferred to the money market

fund.

The XYZ Board of Trustees plans to retain the custodial services of its current

firm.

2. Purpose of the RFP

15   

 

 

 

The purpose of the RFP is to find the best qualified Investment Advisor to serve

the needs of the XYZ Pooled Trust Board of Trustees with investment

consultation.

The XYZ Pooled Trust Board of Trustees would like to find an Investment

Advisor to perform the following duties:

Provide investment oversight and consulting

Review the statements and reports generated by the custodian

Recommend asset allocation modifications in line with current XYZ

investment policy, (see investment policy enclosed)

Implement and monitor a low-cost mutual portfolio

Provide clear and understandable reports quarterly on the pooled

trust’s investment performance for board review. The reports should

include comparisons of the trust’s mutual funds with their relevant

benchmarks.

Update and report to the XYZ Pooled Trust board in person on a

semi-annual basis

3. Requirements for proposal preparation

A written proposal is required. Please indicate your interest in the investment

advisor position, your investment consulting experience, your credentials, and

the types of clients you currently serve. In addition to enclosing your ADV Part

2, please list and explain any recent (last three years) law suits or arbitration

settlements you or your firm has been involved with. Please provide your

investment philosophy and how it would be applied to a pooled trust investment

portfolio. Your proposal can include charts, graphs and reports supporting your

investment process, management style and asset allocation strategy for XYZ

Pooled Trust. Please include a sample investment report for our review. Any

16   

 

 

 

remarks or recommendations about the current investment policy are welcomed.

Your proposal should include your fee for investment consulting services.

4. Outcomes and Performance

We expect questions and requests for information to be handled professionally

and timely. We will expect most deliverables to be submitted electronically.

The XYZ Board of Trustees will review the performance of the Investment

Advisor annually for retention purposes.

5. Timeline

Deadline for Proposals: October 15, 2019 by 5 p.m.

All written proposals will be reviewed by XYZ Investment committee for

final selections. Finalists will be chosen to present their proposal in front of

XYZ Board of Trustees on Tuesday November 5, 2019 at 1 p.m. Please submit

proposals by mail. The proposals should be addressed to:

John Doe, Executive Director, XYZ Pooled Trust, 501 Main Street Lisle, IL

60532 Please contact us with any questions at 312-555-1212 or email:

johndoe@xyzpooledtrust.org.