FROM: Don Pierce, Chief Investment Officer
SUBJECT: 2021 Emerging Market Debt Manager Selection.
RECOMMENDATION:
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Approve the selection of Finisterre Emerging Markets Total Return strategy with a $100 million allocation, subject to completion of due diligence and legal document review.
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BACKGROUND:
In March 2021, SBCERA initiated a search for Emerging Market ("EM") debt investment management services with the objective of making a well-informed manager selection by drawing out responses from a diverse set of investment managers.
A progress update of the RFP was shared with the Investment Committee in August 2021. At the meeting, SBCERA's stated objective was to identify up-to two finalist managers for consideration as the RFP process uncovered multiple differentiated approaches to managing EM debt portfolios. Following our due diligence process, Staff identified two investment managers that warranted additional time to allow for the development of their respective track records.
As highlighted at the August meeting, a total of 31 investment managers responded to SBCERA's RFP in March. Staff and NEPC have independently reviewed the responses and followed a thorough vetting process involving quantitative and fundamental measures to identify managers that would be an appropriate fit within the broader EM debt portfolio. Some of the quantitative screens include reviewing both absolute and relative measures on performance and volatility, upside/downside capture, and correlation relative to the existing SBCERA EM debt portfolio. From a fundamental perspective, staff and NEPC focused our review on understanding the investment process (including decision making and execution of trades), factoring of macro-economic views, team strength and stability, and importance of the EM debt strategy to the firm.
SBCERA's allocation to EM debt is 8% or approximately $1.1 billion, based on a $14 billion plan. This allocation is currently invested thro...
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