RFP: Diary of an institutional salesman, part 16

When I saw the e-mail pop into my inbox, I will confess, dear diary, a moment of joy. Admittedly, the subject line is not something to impress anyone at a cocktail party: “Invitation for Expression of Interest for Investment Management Service for Multi-Asset (Hong Kong equity and global bond) Portfolio”. But it was sent to me, William T. Fitzgerald of Integrity Asset Management, directly from the director of investments at one of Hong Kong’s biggest quasi-government agencies, Public Lands & Open Domains (Plod).

It has been at least a year since I treated their team to a banquet dinner, so I admit I was surprised by the contact. The frisson of excitement was deflated as soon as I opened the message and saw it had been sent to virtually everyone in the industry. A quick scan revealed many addresses from people who have moved on, and even to firms that no longer exist.

Gavin Price was on it twice, once for his old shop Swiss Heritage, and also for his present employer, Gravitas Asset Management. What fun, I get to beat him twice on this mandate.

Nonetheless, this who’s who of fund houses leaves me – and presumably everyone else – wondering at the logic. Presumably a government edict requires all players be allowed to compete, but if you add up the sum total of industry people who waste time on the long forms, sub-schedules and appendices required – for nought – then I’d say you can erase a half-percentage point off Hong Kong’s economic growth for Q4, 2010.

Why do clients persist with this archaic method of manager selection? Their buying process is now going to trip up my sales process. What will they do with all of this information anyway? Is the final decision between Integrity and Gravitas really going to boil down to how many IPs (‘investment professionals’?) left our firm in 2005?

Well, everyone knows what counts for these investors is less the manager pick and more the asset allocation and risk budget. So Plod is clearly in trouble if its strategy is half Hang Seng Index stocks and half global agg bonds, which are not natural bedfellows, or even diversifiers (think dollar peg). No doubt this ugly pairing is the result of hours of debate at a venerable advisory sub-board of trustees which then kicked the can down to a consultant, who soldered two mandates together and called it ‘multi-asset’.

In a further demonstration of decision-dodging, Plod permits the lucky winner to vary the exposures from 30% to 70% as they see fit from time to time.

Sigh. The RFP requires the same litany of useless information that the consultant no doubt already possesses, having asked us the same sets of questions several times already. It’s a CYA operation based on the assumption that I have all the time in the world to fill in the paperwork.

Or maybe it’s a power thing. The rare occasion when the boring civil servants at Plod get to make some rich monkeys dance. Enjoy it while it lasts, fellas.

Here, dear diary, are a few gems from this particular RFP and my take on the most appropriate response.

Please explain in no more than 100 words why you should be considered for this, in preference to your competitors.
“Quite literally, there is nothing I won’t do to win this deal. My numbers are way down this year, and your HK$1.5 billion would see me home and dry for 2010. I’ll be your slave for a year. Or I can certainly arrange for someone to be your slave for a year…”  That’s well below 100 words and I think you know what I’m saying here.

What plans do you have to minimise the effect of departures of key IPs?
“We have been pioneering a radical new retention plan, actually advised by your consultant's HR advisory business. It’s called the ‘Tying Important People to Their Office’ programme (or TIP-TOe for short) and basically it involves a few bungee ropes, some industrial-strength adhesive and a team of lawyers. Therefore, in the unlikely event of key IPs departing the firm, we can compensate client portfolios from our court-case winnings against Lock-tite and ACME Bungee Cords.”

How do you expect your return and tracking error to vary through different market environments?
“We really don’t have any better idea than you do on this one. If we did, do you think we’d be completing this bloody form for you? No, we’d be zillionaires by now. Look, this is a boring, fully invested portfolio – we’ll be within a few percent of the benchmark year-in, year-out. If we’re not, then you will sack us because we’ll either have lost stacks of your money or we’ll have performed so freakin’ well you'll think we’re Bernie Madoff.”

OK, OK, the right answer to this is that we will aim to control risk appropriately and maintain consistent alpha targets throughout the business cycle, but that is what we call a marketing placebo: if it makes you feel good, then keep taking those pills, buddy…

Is there anything else you consider could be relevant?
Jesus wept. Do you want me to write the RFP for you too? What are you paying those consultants for? Given the total irrelevance of the rest of the information in this questionnaire, where should I start? I can tell you how much less I’ll charge you than I charge my other clients. I can tell you those all-important measurements of the client-service girl I will assign to your account. And I can tell you the definition of career risk as it pertains to picking fund managers.

But that’s not for the RFP, my friend. That’s for the Beauty Parade, the next step in your outmoded selection process. See you in the boardroom, tiger.