FROM: Barbara Hannah, Chief Counsel
SUBJECT: Investment Manager Contracting Process
RECOMMENDATION:
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Review of Investment Manager Contracting Process.
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BACKGROUND:
The SBCERA Board of Retirement serves as the sole trustee of the retirement trust and is subject to the fiduciary duties established under Article XVI, section 17 of the California Constitution and Government Code section 31595. Although the Board may delegate investment authority to external managers, such delegation does not diminish the fiduciary nature of the delegated responsibilities. To fulfill these obligations, SBCERA utilizes its Master Custody Account Agreement (MCA) to establish contractual responsibilities of investment managers and safeguard retirement trust assets.
The MCA includes provisions addressing fiduciary standards of care, liability for negligence, indemnification, confidentiality and public disclosure requirements, regulatory compliance, insurance requirements, and most importantly, the business terms governing the relationship with the external manager. These provisions are intended to protect SBCERA and ensure that managers exercise delegated investment authority consistent with applicable fiduciary obligations.
Investment Manager Contracting Process
Based on prior experience negotiating investment management agreements, staff recognized that the contracting process can be lengthy, particularly when material contractual terms are not addressed until after the manager has been approved. Staff also recognized the importance of ensuring the prospective managers understand SBCERA’s fiduciary responsibilities and the key contractual provisions governing the parties’ relationship before their selection is considered.
To address these challenges, improve efficiency, and minimize delays in executing investment management agreements, staff has implemented a process whereby prospective investment managers are provided with the MCA, applicable SBCER...
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