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Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 1 Discretionary Management Services, LLC
QUESTIONNAIRE
I. Organizational Background and Personnel
A) Provide a brief summary and history of your firm, including year of inception, ownership
structure, affiliated and subsidiary companies and relationships, joint ventures, business
partners, number and location of offices, and number of professional consultants. Indicate
which office would service our account.
Discretionary Management Services, LLC (DMS) is based in Merriam, KS (Kansas City)
and is an affiliate of DeMarche Associates, Inc. DMS was established in 2007 in
response to DeMarche client requests for outsourced discretionary management services
(OCIO). Prior to 2007, discretionary accounts were managed by DeMarche and the
initial client engagement was in 2003. The principals formed DMS to formalize
management of tax-exempt assets for institutions. The current principals have been
partners at DeMarche Associates, Inc., for over 18 years.
Ownership of Discretionary Management Services is as follows:
William Miskell 36.4%
Thomas C. Woolwine 36.3%
Robert F. Marchesi 27.3%
Affiliates and related entities
DeMarche Associates, Inc.
DMS is an affiliate of DeMarche Associates, Inc., an investment consulting firm founded
by Robert Marchesi in 1974, providing institutional investment consulting and research
services to defined benefit, defined contribution, endowment, foundation and operating
fund clients. DMS and DeMarche have a facilities and services agreement, under which
various services are provided to DMS by DeMarche.
Kansas City Brokerage, Inc.
DeMarche established Kansas City Brokerage, Inc. (KCB) in 1993 as a subsidiary to
accommodate those clients who choose to use third-party payer or directed brokerage
services as a method of paying for consulting services. KCB is registered with the
Securities and Exchange Commission and is a member of the Financial Industry
Regulatory Authority (FINRA). All trading and clearing services are provided by
ConvergEx Execution Solutions LLC. DMS does not trade with KCB.
ENDEX Capital Management
ENDEX is a private, independently-owned investment advisory firm organized in 1997
in the State of Kansas as a Limited Liability Company. ENDEX is owned by four
individuals, all of whom serve on the company’s Board of Managers. Principal owners of
ENDEX are Julie Marchesi, Christine Rudicile, Timothy Marchesi, and Jeffrey Hoffman.
ENDEX and DeMarche Associates, Inc. have a facilities and services agreement, under
which certain back-office services are provided to ENDEX by DeMarche, such as
accounting, programming/IT and compliance. ENDEX provides discretionary
investment management services in portfolios of exchange-listed and over-the-counter
equity securities.
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 2 Discretionary Management Services, LLC
Our corporate headquarters are located at the following:
Discretionary Management Services, LLC
6700 Antioch Road
Antioch Plaza, Suite 420
Merriam, Kansas 66204 (Kansas City suburb)
We have 14 consultants who average 28 years investment experience. Four consultants
serve as portfolio managers for DMS. It is important to note that research time invested
on capital markets and managers is generally shared and employed by both firms,
DeMarche and DMS.
B) Provide the names, titles, home office locations and biographies of key individuals who
would be directly responsible for providing services to our account. Include the year each
individual joined your firm, current responsibilities, area of expertise, experience,
education, professional designations and memberships. Detail their roles and the scope of
their involvement for this assignment.
DMS Investment Committee
Christina R. Danner, CFA, Portfolio Manager
Ms. Danner is a portfolio manager of the firm specializing in fixed
income securities, international assets and stable value products. She is
also a senior consultant with DeMarche Associates, Inc., an affiliated
firm. Prior to joining DeMarche, she was senior securities analyst of
fixed income securities at Kansas City Life Insurance Company. In that
role, she implemented strategic decisions on more than $800 million in
fixed income assets.
Ms. Danner is a Chartered Financial Analyst, a member of the
DeMarche Manager Review Committee and chair of the Asset
Allocation Committee. She received her MBA from the University of
Kansas and her bachelor’s degree from the University of Missouri,
where she graduated summa cum laude. Ms. Danner is a member of the
Kansas City Society of Financial Analysts and the CFA Institute.
James F. Dykstal, CFA, Portfolio Manager
Mr. Dykstal is a portfolio manager of the firm, specializing in capital
markets research and asset allocation. He is also a consultant with
DeMarche Associates, Inc., an affiliated firm. He is a member of the
DeMarche Manager Review Committee and MARC-Alternatives
Committee. Prior to joining DeMarche he was treasurer and fixed
income manager for FC Stone Group. Prior to that time, he was vice
president and senior portfolio manager at Commerce Trust Company in
Kansas City. He also held the positions of vice president at First
Tennessee Capital Markets and investment advisor at Southwest
Corporate Federal Credit Union.
Mr. Dykstal received his CFA in 1998 and his MBA from the
University of Missouri. His undergraduate degree is from the
University of Wisconsin-Madison. Mr. Dykstal is a member of the
Kansas City Society of Financial Analysts and the CFA Institute.
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 3 Discretionary Management Services, LLC
Timothy J. Marchesi, CFA, Chief Investment Officer & Portfolio
Manager
Mr. Tim Marchesi serves as chief investment officer and portfolio
manager for Discretionary Management Services (DMS). Tim is also
president & CEO of affiliate, DeMarche Associates, Inc. (DeMarche).
Mr. Marchesi serves DeMarche in numerous other capacities including
principal, senior consultant, chair of the Manager Review Committee
and director of research. Further, Tim is principal and president of
Kansas City Brokerage (KCB), a subsidiary established by DeMarche,
which is a registered broker/dealer with the Securities & Exchange
Commission. DeMarche established KCB for clients who choose to use
directed brokerage.
Previously, Tim served as vice president and portfolio manager for
American National Bank and Trust Company of Chicago. He earned
his bachelor’s degree in business from the University of Notre Dame.
In addition to his Chartered Financial Analyst (CFA) designation, he
has FINRA licenses Series 6, 7, 24, and 63.
Robert F. Marchesi, Chief Investment Officer & Portfolio Manager
Mr. Marchesi serves as chief investment officer, portfolio manager and
principal of Discretionary Management Services (DMS). He is also
founder of affiliate, DeMarche Associates, Inc. (DeMarche), where he
is currently chairman. Prior to founding DeMarche, he was vice
president and director of portfolio, economic and technical research for
Waddell & Reed, Inc., and vice president and general manager for
Research Management Associates, Inc., an investment counseling
subsidiary of Waddell & Reed, Inc. Previously, he was a senior
investment analyst for Waddell & Reed, and a senior investment analyst
for the Harris Trust & Savings Bank, Chicago.
Mr. Marchesi received his MBA with honors from Washington
University and his bachelor’s degree in business administration from
Quincy College. He is a frequent lecturer at investment conferences and
the author of articles on performance measurement, asset allocation, and
portfolio diversification. His focus in corporate finance has been on
Company Life Cycles, Cost of Equity Capital and Liquidity. Mr.
Marchesi is a past member of the board of directors and past president
of the Kansas City Society of Financial Analysts and past advisor to the
Center for Research on Security Prices at the University of Chicago. He
is currently a member of the International Society of Financial Analysts
and the CFA Institute.
James F. Dykstal, CFA, Portfolio Manager, will have direct responsibility for managing
your account and will be your lead DMS contact. Thomas C. Woolwine, DMS President
and Relationship Principal, will serve as back-up. Jim has been with DMS since 2010 and
has 24 years investment experience. Thomas C. Woolwine has been with DMS since its
inception (2007), joined parent company DeMarche in 1986 and has 32 years investment
experience.
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 4 Discretionary Management Services, LLC
Thomas C. Woolwine, President
Mr. Woolwine is the president and a principal of the firm. Prior to
joining DeMarche Associates, he was an investment officer in the
fixed income department of Boatmen's First National Bank of Kansas
City, where he advised institutional clients on portfolio management
and trading strategies.
Mr. Woolwine received his graduate diploma from the ABA’s Stonier
Graduate School of Banking at the University of Delaware and his
bachelor’s degree in economics from Knox College. He is a member
of the Kansas City Society of Financial Analysts and the CFA
Institute. He completed the AIMR Investment Management Workshop
at Princeton University, the Financial Analyst Seminar at Northwestern
University and the CFA Continuing Education Program.
C) Does your firm have any ownership or financial relationships with any other financial
firms, including asset management, broker/dealer, banking, insurance or actuarial firms?
See question I. A).
D) Is your firm, its parent or affiliate(s) a registered investment advisor with the SEC under
the Investment Advisors Act of 1940? If not, what is your fiduciary classification? Please
provide a copy of your most recent SEC Form ADV Part II.
Yes. Please see attached Form ADV Part II.
E) Within the last five years has your organization or an officer or principal been involved in
any business litigation or other legal proceedings relating to your investment advisory
and/or consulting services? If so, provide an explanation and indicate the current status or
disposition.
No.
F) What protection does your firm offer it clients from negligence or willful acts of
omission? Acts of fraud? Describe any insurance coverage your firm may have that is
applicable in this area.
DMS carries Investment Advisors Errors & Omissions Liability insurance with an
aggregate limit of liability of $1,000,000 per policy period, $75,000 deductible. The
name of our primary insurance carrier is Chubb Group, underwritten by Federal
Insurance Company.
II. Client Services
A) Describe your firm’s client service philosophy in regards to the OCIO services model. If
you provide traditional consulting services, how do your OCIO services differ?
Discretionary Management Services is an affiliate company of DeMarche Associates,
Inc. DMS was expressly formed in 2007 to provide an outsourcing solution for plan
sponsors seeking to utilize the investment experience and expertise of DeMarche
Associates. DMS goes beyond DeMarche’s traditional consulting model to assume
responsibility for manager retention and replacement decisions as well as tactical asset
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 5 Discretionary Management Services, LLC
allocation and rebalancing. Through DMS, the broad asset allocation and investment
policy determination is a collaborative effort between our firm, the client and their
actuary. This ensures that the client is comfortable with the overall definition and level
of risk being assumed by the portfolio. DMS representatives deliver a quarterly
performance report, discuss our economic and market outlook and review tactical
portfolio positioning to ensure our client understands how our long-term vision is being
carried out. DMS management believes that clear and regular communication with
clients is the key to successful customer service. Because we have common goals and a
vested interest in the successful, long-term management of our clients’ assets, we believe
that DMS is in a true partnership with each client.
B) What services does your firm provide for the education and enhancement of our IC
members?
DeMarche provides regular educational forums for our clients including luncheon
workshops, teleconferences and an annual Client Conference which we have held for
thirty consecutive years. Our continuing education program is supplemented by a series
of regular White Papers in all of the practice areas with which we consult.
In addition, we will work with your committee or trustees for custom workshops as
needed.
Recent White Papers
Alternative Investments
Understanding Active Equity Manager Performance (and Underperformance)
Behavioral Finance: The "Science" Behind Investor Decisions, Coleen D. Trimble,
Senior Consultant
Tactical Asset Allocation, James Dykstal, CFA
DMS Enables Clients to Focus on Strategic Initiatives
CONSULTING SERVICE DISCRETIONARY SERVICE
Function Consultant Client DMS Client
Investment Policy
Asset Allocation* Analysis Decision Analysis Decision
Investment Policy Statement* Analysis Decision Analysis Decision
Portfolio Construction
Investment Strategy Analysis Decision Implements Monitors
Manager Structure Analysis Decision Implements Monitors
Manager Selection
Manager Search and Selection Analysis Decision Implements Monitors
Portfolio Optimization Analysis Decision Implements Monitors
Transition Management Analysis Decision Implements Monitors
Tactical Restructuring
Rebalancing Analysis Decision Implements Monitors
Tactical Shifts Analysis Decision Implements Monitors
Ongoing Due Diligence
Performance Monitoring & Reporting Implements Monitors Implements Monitors
Ongoing Manager Due Diligence Implements Monitors Implements Monitors
Manager Retention/Replacement Analysis Decision Implements Monitors
* The broad asset allocation and investment policy determination is a collaborative effort to ensure the client is comfortable with the overall level of
risk being assumed by the portfolio.
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 6 Discretionary Management Services, LLC
III. Investment Philosophy and Process
A) Describe your firm’s investment philosophy. Has it changed significantly over the past 5
years?
Our investment philosophy is value oriented, global and dynamic and the process has
been consistent, without significant changes since inception. DMS believes that different
economies create different investment markets. Changing markets impact leadership of
various assets and styles. Our philosophy of investing is best highlighted by the
following tenets:
Tactical, dynamic asset allocation strategies are effective at improving risk/return
profiles.
Win by not losing; emphasize downside protection and capital preservation.
Emphasize active management over passive because markets are inefficient.
Employ multiple sources of alpha generation to beat the odds of being average.
Employ a “value” tilt in equity style diversification; “growth” does not persist and
mean reverts.
Use fewer managers to concentrate best ideas.
Implement a contrarian strategy willing to invest at point of greatest pain.
Be patient and plan to be early.
Emphasize consistency and discipline; invest without emotion.
B) Describe the process your firm will use to construct a portfolio for us, including a
description of your approach to developing the investment goals/objectives/policies and
the expected role of the IC and University staff.
We begin any new DMS relationship with completion of an Investment Philosophy and
Risk Tolerance Questionnaire. This activity helps us to become thoroughly cognizant of
their unique risk tolerance, the objective and purpose of their fund, and the guidelines and
considerations specific to their needs. The investment committee and university staff
would work with DMS and be asked to define risk tolerances and give return feedback.
An understanding of these helps DMS apply its view of the risks and opportunities in
various markets, styles, and strategies, in a way appropriate to each client. Whether a
client has regular or unpredictable cash withdrawal needs, or is planning a long phase of
making additional investment contributions, impacts application of our tactical opinions,
so it is critical for us to know as much as we can about each client and their
situation/needs.
DMS is unique among OCIO providers as we will tactically shift assets around the
targets/within the ranges for growth assets in an attempt to add alpha. Our approach,
process and philosophy for implementing this work are described in the three steps below
and remains consistent with our initial views and processes:
Step 1 – Global Asset Allocation Policy
Establish goals and objectives and define benchmark targets/ranges for client
portfolio
- Ensure suitability of multiple goals: absolute, relative, peer, and risk-adjusted
- Dynamic consideration of asset classes able to help strategically
- Enhance guidelines to benefit from opportunities in sub-classes including style
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 7 Discretionary Management Services, LLC
Evaluate economic conditions using DeMarche’s strategic forecast (next three to five
years) developed by the Asset Allocation Committee. This incorporates our
proprietary “supercycle” analysis, which identifies differences in the interaction and
performance between asset classes
- GDP and earnings growth forecasts
- Inflation, interest rates and Fed policy
- Demographics, unemployment and debt
Evaluate market conditions using proprietary and external measures of valuation,
spreads, momentum and liquidity
- DeMarche expected return factor model
- Conditional probability framework
- Stock market phase indicator
Step 2 – Portfolio Construction and Implementation
Select active managers to manage core sub-allocations using DeMarche Manager
Review Committee (MARC) approved managers universe
- MARC modeled after a traditional securities research department:
Committee members average nearly 30 years of investment experience
Due diligence is centralized within a committee structure
Top down and bottom up analysis
Qualitative and quantitative analysis
Extensive fundamental research including creating unique profiles
- Research emphasis on Leading Indicators of performance
- Factor model forecast expected good/bad performance by manager style
Execute tactical shifts among strategies and styles within and between asset classes
(i.e., large/small cap, growth/value, treasury/credit, long/short duration, etc.) based
upon portfolio managers reaching consensus on opportunities in current environment
Utilize ETFs/index funds for tactical moves to minimize frequency of disruptions to
managers
Step 3 – Ongoing Oversight and Risk Management
Meet at least weekly to review portfolio position (sub-classes and sub-advisers)
versus policy targets and ranges to ensure prudent monitoring, reporting and control
procedures
Have buy and sell orders in place to take advantage of market changes occurring
between meetings
Focus on being early at recognizing changes in direction and valuation of broad
markets and leadership of sectors and factors
Emphasize downside protection and capital preservation as losses hurt more than
gains heal
C) Included with this Request is our portfolio and return history as of December 31, 2013.
Per our current IPS, the primary investment objective of the Endowment is to achieve an
annualized total return (net of fees and expenses) over a full market cycle (3 to 5 years)
which equals or exceeds the assumed spending rate of 5% plus the rate of inflation.
If you wish to do so, we would be interested in your opinion on our return history and
current portfolio and its ability to meet our investment objective. Discuss how your firm,
if given full discretion, would change the portfolio. Please provide your rationale.
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 8 Discretionary Management Services, LLC
DMS works with each client to become thoroughly cognizant of their unique risk
tolerance, the objective and purpose of their fund, and unique guidelines and
considerations. An understanding of these parameters helps DMS apply its view of the
risks and opportunities in various markets, styles, and strategies, in a way appropriate to
each client. Without the appropriate due diligence and a greater understanding of your
investment committee and plan needs, DMS would be unable to give a complete
evaluation of prior or future investments. Although we are eager to provide our expertise
and assistance, an in-depth discussion of identifying risk and return tolerances that are
appropriate relative to the goals of the fund would be necessary to build the foundation
for our investment process and evaluation.
IV. Investment Manager Research and Selection
A) How are investment managers/funds selected?
DMS uses the databases and processes of DeMarche to select managers for a client
pursuant to their individual investment policy.
DeMarche maintains a proprietary, in-house database that includes information on over
1000 managers and over 3000 institutional-quality products. Our view is that the best
database is not about following the most managers but following the best managers.
While we always are looking for the next best manager, it is not a numbers game but a
quality issue. Many OCIO providers might answer this question by including the many
thousands of managers from non-proprietary databases – our answer is based on just our
in-house proprietary system. We do have outside databases such as Morningstar for
mutual funds or eVestment for separate accounts that provide many thousands of added
products and managers to consider.
Investment Manager Search
Director of Research/
Research Department
MARC Committee
Working List
Complete List
Questionnaire
Computer
Support
Style
Surveys
Field
Trips
Manager Visits
to DeMarcheManager
Profiles
Manager
Reports
Client
Input
Key Steps/Inputs In Our Research Process
Semi-Annual
Screens
ManagerGrading
System
DeMarche Associates is an independent investment consulting firm working with corporations, public entities, non-profit organizations and investment managers. DeMarche offers a broad range of services including some that provide recommendations about individual stocks, groups of stocks, investment managers, and groups of investment managers. Our stock and manager ratings and
recommendations are based on independent research and are not influenced by our relationship with the corporations or investment managers.
While we may from time to time provide services to a company or an investment manager, or have an investment manager as a sponsor of one of our conferences, such services are independent of our
stock rating, manager review and search services. We do not receive compensation or benefits from either the companies or managers in connection with our stock ratings, manager review, or search
services. Copies of our Form ADV are available for a more detailed disclosure. More information regarding DeMarche can be obtained from our website www.demarche.com.
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 9 Discretionary Management Services, LLC
B) How does your firm evaluate and monitor investment managers/funds? What key criteria
do you consider in the review of an investment manager/fund?
The responsibility for manager due diligence is driven by DeMarche’s Manager Review
Committee (MARC). MARC oversees a rigorous 10-phase due diligence process. The
committee is made up of the firm’s most experienced consultants who evaluate critical
quantitative and qualitative factors. This committee meets every Monday morning to
discuss manager news, review manager profiles and identify issues requiring additional
research. All client managers are evaluated by the Committee each quarter relative to
their appropriate style universe. Performance is also reviewed relative to each manager’s
benchmark, tracking error and alpha generation (information ratio). We watch for style
drift on a quarterly basis using a proprietary holdings-based analytical tool and monitor
qualitative factors that we believe are predictive of future poor performance such as a
change in firm ownership, changes in personnel or investment process and significant
changes in the amount of assets under management. Additionally, we confirm that all
returns are compliant with the Global Investment Performance Standards (GIPS).
Two primary groups of people perform investment manager research for DeMarche. The
Manager Research Team performs all manager research. The Manager Review
Committee (MARC) selects and approves all managers for use in our client’s portfolios.
Both groups are responsible for ongoing monitoring of investment managers.
The manager evaluation process described below illustrates how DeMarche evaluates
critical quantitative and qualitative factors of investment organizations.
The DeMarche questionnaire is the building block from which we collect information
on specific managers, their products and their performance. These questions include
specific performance data and other firm information.
Twice a year, DeMarche evaluates the performance data reported to us by managers
compared to broad market indexes like the S&P 500 and our own style indexes. We
group these managers by performance versus indexes over a three- to five-year
period. MARC uses this Manager Universe ranking as a tool to select managers that
deserve further review for use in our searches.
Using the data we retrieve from our various databases, we perform a cluster analysis,
grouping like-performing managers. This exercise tests our preliminary style coding.
Aberrant cluster performance is investigated to find out why a manager performs out
of the norm. Managers are either reassigned to another group or removed from the
DeMarche database based on violation of their self-described process or discipline.
The next screen we apply is that of tenure and size. We don't want to train managers
with our clients' money, so new and emerging firms are seldom used. Further, a
management firm’s size or growth may affect its ability to take on our clients’
business. The group of managers surviving this screening is placed on the DeMarche
Manager Working List.
Managers from the Working List with whom DeMarche has conducted face-to-face
meetings and written a full profile analysis pass the next hurdle. Each manager's
portfolio construction process and quality control techniques are articulated in the
DeMarche Profile. An in-person interview is mandatory. The interrogative nature of
these interviews is what separates DeMarche from other consultants. This process
gives us a deeper understanding of how managers generate returns, control risk and
maintain their investment discipline. We go beyond the marketing pitches and meet
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 10 Discretionary Management Services, LLC
personally with the actual portfolio managers and principals of the management
firms.
The final step in our manager screening process is a Portfolio Review. Before
managers are approved for use in our searches, they must submit an actual portfolio.
Holdings are checked against all of the manager's marketing claims as well as the
DeMarche style code and profile assertions.
A minimum of one face-to-face meeting with senior portfolio members is required
prior to product approval and one meeting every two years is generally required on
an ongoing basis.
Our research staff has in-person and/or conference call meetings with hundreds of
managers per year. Notes taken during our meetings with managers are ultimately
reflected in a profile written by our research staff, which can be made available to clients.
Consultants will often conduct on-site visits of investment managers.
V. Risk Management
A) Describe the manner in which your firm accounts for and allocates risk at the total
portfolio level. How are decisions as to allocation of portfolio risk taken and who makes
those decisions?
DMS uses DeMarche’s asset allocation process which was developed in-house and is
proprietary. Using computer optimization modeling and inputs on over 20 asset classes,
we explore a range of possible portfolio structures, each with a unique expected return
and risk profile. Portfolios are selected by the computer model based on the expected
returns, volatilities, and correlations of the underlying securities to each other. The result
is a range of “efficient portfolios,” each providing the greatest level of expected return for
a level of expected risk or volatility. The range of portfolios is called the efficient
frontier, a sample of which is shown below:
DMS works with each client to mitigate risk by employing these tools and utilizing
Tactical Asset Allocation to prevent excessive volatility. Your investment committee
will decide what your risk and return tolerances are and choose the “efficient portfolio”
that meets their needs.
1
2
3
5
4
Current
6
7
8
9
10
8.75
9.25
9.75
10.25
10.75
11.25
11.75
12.25
9 10 11 12 13 14 15 16
RETURN
RISK
Efficient Frontier
Base Case
Portfolio #1 9.36 9.15
Portfolio #2 9.54 9.34
Portfolio #3 10.03 9.66
Portfolio #5 10.90 10.10
Portfolio #6 11.34 10.29
Portfolio #7 11.97 10.53
Portfolio #8 12.73 10.75
Portfolio #9 13.70 10.99
Portfolio #10 14.54 11.18
Current Portfolio 11.69 10.09
RISK RETURN
Sample Client
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 11 Discretionary Management Services, LLC
VI. Performance Evaluation and Reporting
A) Does your firm offer comprehensive performance reporting that tracks progress against
goals and monitors the level of risk across the entire portfolio? If so, how frequently and
how soon after the end of a period are the reports available? Please provide a sample
performance report. Describe your firm’s ability to provide customized reporting based
on specific client preferences or requirements
DMS’ quarterly performance measurement service includes a Capital Market Review
and Performance Appraisal Report. They are described below. We will review these
reports with you in person every quarter and the availability of reports may vary with the
inclusion of real or alternative assets in your selected portfolio.
The Capital Market Review provides our analysis of specific, timely, capital market
conditions. This report is excellent for defining the economic and market environment
within which your managers operated for the previous quarter and helps to put your fund
and managers’ performance in perspective.
The Performance Appraisal Report provides comparisons of your total fund
performance verses the relative benchmark and comparable client universes for all major
time periods as well as by calendar year. Furthermore, it compares each investment
manager’s performance versus their specific risk and return objectives and universes of
style peers. It shows most recent portfolio positioning, attribution as well as market
outlooks for the economy and investment markets.
B) How do you benchmark client portfolios? How should we, as a client, measure our joint
success?
Since most investment managers have a distinct style, they perform differently in
different phases of a market cycle. To effectively evaluate performance, managers
should be compared to an index that truly reflects the type of securities they hold. For
example, small cap stock managers should be compared to an index of small cap stocks,
growth stock managers should be compared to an index of growth stocks, and so on.
Investment managers should be evaluated against benchmarks (market or style indexes)
that are reflective and representative of their investment process, including security style
and capitalization criteria. Furthermore, managers should be compared to a peer universe
- managers with similar investment orientations.
Typically, we establish three performance benchmarks for the total fund: (1) an absolute
objective (often a rate of return in excess of inflation), (2) a relative objective (weighted
average of asset class benchmarks representing the target asset allocation), and (3) peer
comparison with approximately similar asset allocations. Outperformance of these three
goals over a market cycle, net of fees and without taking undo risk, should be a deemed a
success.
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 12 Discretionary Management Services, LLC
VII. Client Base
A) What is the total dollar amount of client assets advised by your firm? Please provide a
current client summary by client type.
Client Accounts as of 12/31/2013:
DMS: 16 fully discretionary portfolios - $398 Million
DeMarche: $27.7 Billion
Breakout of DMS Assets by Client Type as of 12/31/2013:
Corporate 5.8%
Endowment/Foundation 30.8%
Private 62.7%
Partnership (GTAA Fund) 0.7%
B) Provide a list of clients that may be contacted as references for which you provide OCIO
services.
Mr. Jeff Remaley
Finance Manager
Unity School of Christianity
1901 N.W. Blue Parkway
Unity Village, MO 64065
Tel: (816) 524-3550 x3800
Mr. Steve Hilliard
Director
Endowment Trust Fund for Catholic Education
Diocese of Kansas City - St. Joseph
20 West 9th Street
Kansas City, MO 64105
Tel: (816) 213-3108
Ms. Kathy Collins
Vice President - Revenue and Treasurer
Christiana Care Home Health and Community Services, Inc.
200 Hygeia Drive, Suite 2600
Newark, DE 19713
Tel: (302) 623-7249
VIII. Code of Ethics & Conflicts of Interest
A) Describe your firm’s code of ethics and conflict of interest policies. Include an
explanation of how these policies and any other measures taken by your firm insure that
your firm’s actions are always aligned with your clients’ best interests.
Consultants must sign a quarterly compliance document that details our code of ethics
and compliance measures:
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 13 Discretionary Management Services, LLC
DeMarche Associates Code of Ethics
All employees are required to familiarize themselves with the DeMarche Code of Ethics
and acknowledge in writing each year that they have read and agree to abide by them.
The Chief Compliance Officer will maintain a record of each employee’s receipt of the
DeMarche Code of Ethics.
Provisions of the DeMarche Code of Ethics
Diligence
Employees are expected to exercise diligence and thoroughness in the preparation of
deliverables for clients, and make no misrepresentations about services, capabilities,
results achieved and qualifications of the firm or its employees. All employee work
product must be based on independence and objectivity, and in the best interest of the
client and the clients’ plan participants.
Compliance with Laws and Regulations
Employees shall maintain knowledge of and comply with all laws, rules and regulations
of any governmental or regulatory organization applicable to the firm’s business.
Confidentiality of Client Information
All client information is to be treated with confidentiality and should not be shared with
anyone outside the firm without written approval from the client.
Personal Securities Trading
Employees must submit quarterly securities transaction reports and annual securities
holding reports on a timely basis. New employees will provide a securities holding
report within their first 30 days of employment. Employees are prohibited from
purchasing or selling securities that are known to be planned purchases or sales by an
investment manager.
Employees are required to obtain approval from the CEO before acquiring beneficial
ownership in any security in an initial public offering or in a limited offering. The
Compliance Officer will review all securities reports, research any transactions and
holdings that appear to be questionable, and document investigations and infractions as
necessary.
Violations of the Code of Ethics
Violations of company policies or the Code of Ethics must be brought to the attention of
the Chief Compliance Officer, the Chief Operating Officer, or the Chief Executive
Officer. Violations will be reviewed on a case-by-case basis. Warnings will be issued in
less serious cases, and sanctions (including termination) may be imposed in more serious
cases. The Chief Compliance Officer will maintain files of violations, warnings issued,
and sanctions imposed.
B) If you answered yes to the question at section I, E), then describe how your firm avoids
any potential conflicts of interest.
N/A
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 14 Discretionary Management Services, LLC
IX. Fees
A) Specify all fees (consulting, custodial, management, etc.) applicable to the OCIO services
described in the “Scope of Services” section. Please specify whether the fee quoted is all-
inclusive or could other expenses occur as a result of this relationship (travel, special
projects, etc.).
Discretionary Management Services, LLC (DMS) offers two fee arrangements:
1) Asset Based Fee
30 basis points on first $25 million
20 basis points on next $25 million
15 basis points on next $100 million
10 basis points on next $100 million
5 basis points over $250 million
2) Asset Based Fee plus Performance-Based Fee
Asset Based Fee
20 basis points on first $25 million
15 basis points on next $25 million
10 basis points on next $100 million
8 basis points on next $100 million
3 basis points over $250 million
Performance-Based Fee
• 20% of Total Fund Return in excess of Relative Objective
• Example of a Quarterly Calculation:
○ Performance-Based Premium = Client Net Total Fund
Return – Relative Objective [based on the latest 4 quarters]
○ Performance-Based Fee = (Performance-Based Premium *
Average Fund Assets over the last 4 quarters) * 20% ÷ [4
quarters]
○ Performance-Based Premium is capped at 2%
Notes:
• Minimum Annual Fee is $50,000.
• Fees negotiable for mandates over $500 million.
• DMS may include ongoing Performance Measurement and an Asset Mix
Study to develop asset class targets and ranges as approved by the client.
• The fees represented above are for Discretionary Management Services, LLC
(DMS) only. Underlying investment managers and the custodian will charge
additional fees.
• Relative Objective is a mix of index benchmarks replicating the fund’s target
asset allocation.
Subadviser investment management and custody fees will vary based upon each client’s
unique asset allocation policy and current relationships. The underlying weighted
subadvisers’ fee was 55 bps on 12/31/13 (this will vary depending on our tactical
positioning and active/passive mix). The Fund custodian/recordkeeper is National
Advisers Trust Company and their fee is 20 bps. Our goal is to keep total management,
sub-adviser and custodial fees at or below 1%.
Request for Proposal – OCIO Services
Concordia University, Nebraska
Concordia University, Nebraska – May 2014 15 Discretionary Management Services, LLC
X. Additional Information
A) Provide an executive summary that explains your firm’s strengths and competitive
advantages (i.e. why should we select your firm?).
Distinguishing characteristics of our discretionary outsourcing service model are:
Leverage DeMarche's knowledge of markets and managers gained since 1974
Dynamic asset allocation using passive and active strategies
Fully transparent turnkey solution supported by independent custodian
No proprietary products and emphasis on controlling fees
Co-fiduciary role with portfolio manager as primary contact
Strong down market protection – win by not losing philosophy
B) Provide the primary contact information for questions and future contact.
Contact: Thomas C. Woolwine
President
Address: Discretionary Management Services, LLC
Antioch Plaza Building
6700 Antioch Road, Suite 420
Merriam, KS 66204
Email: [email protected]
Phone: 913-981-1345
FAX: 913-981-1380
Web site: www.dms-demarche.com
Attachments:
Form ADV, Part 2
Sample Performance Appraisal Report (PAR) with Capital Market Review (CMR)
Disclosure Statement
Discretionary Management Services, LLC is an independently owned investment research and management firm that is an affiliate of DeMarche Associates, Inc.
This presentation has been provided to you for use in a private and confidential meeting to discuss a potential or existing relationship. This information is not an advertisement and is not intended for public use. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. Any opinions expressed are subject to change without notice.
All investments carry a level of risk, including the potential for loss of principal. Investments do not grow at an even rate of return and investment will experience varying levels of volatility of returns with the potential for negative returns. Past performance is not indicative of future results.
Copies of the SEC Form ADV for Discretionary Management Services, LLC and DeMarche Associates, Inc. are available for more detailed disclosures. Please contact us for additional information.