Agenda Item 10

February 14,2012

Public Hearing

MEMORANDUM

February 10, 2012

TO:

FROM:

SUBJECT:

County Council

Robert H. Drummer. Senior Legislative Attorney

~

Emerging

Public Hearing:

Bill 2-12, Personnel- Retirement Trust Funds

Investment Managers

Bill 2-12, Personnel - Retirement Trust Funds - Emerging Investment Managers,

sponsored by the Council President at the request of the County Executive, was introduced on

January 17, 2012. A Government Operations and Fiscal Policy Committee worksession is

tentatively scheduled for February 27 at 2:00 p.m.

Bill 2-12 would require the Board of Investment Trustees and the Consolidated Retiree

Health Benefits Trust Board of Trustees to make a good faith effort, consistent with their

fiduciary duties, to hire qualified emerging investment managers. The Board of Investment

Trustees is responsible for managing the assets in the Employees Retirement Trust Fund. The

Consolidated Retiree Health Benefits Trust Board of Trustees is responsible for managing the

assets in the Consolidated Retiree Health Benefits Trust Fund. Both Boards regularly hire

professional investment managers to fulfill this responsibility.

An "emerging investment manager" means an investment manager with assets or product

th

assets below the 75 percentile of their respective peer group or a new or developing investment

manager. The Bill would require each Board to adopt guidelines to identify and evaluate

qualified emerging investment managers. Each Board would also be required to report annually

to the Council and the Executive on or before September

1

for the prior fiscal year. The report

must:

(1)

identify each emerging investment manager used during the fiscal year;

(2)

list the percentage and dollar value of the assets of the trust fund, by investment

sector, managed by each emerging investment manager; and

(3)

describe the good faith effort made to include qualified emerging investment

managers in the procurement process during the fiscal year.

This packet contains:

Bill 2-12

Legislative Request Report

Memo from County Executive

Fiscal and Economic Impact Statement

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Bill No.

2-12

Concerning: Personnel - Retirement

Trust Funds - Emerging Investment

Managers

Revised: December 22. 2011 Draft No.1

Introduced:

January 17, 2012

Expires:

July 17, 2013

Enacted: _ _ _ _ _ _ _ _ __

Executive: _ _ _ _ _ _ _ __

Effective: _ _ _ _ _ _ _ _ __

Sunset Date:--'-N:.,:::o;!,.!.ne>::-_-=--_ _ __

Ch. _ _, Laws of Mont. Co._ _ __

COUNTY COUNCIL

FOR MONTGOMERY COUNTY, MARYLAND

By: Council President at the request of the County Executive

AN

ACT to:

(1)

(2)

require the Board of Investment Trustees and the Consolidated Retiree Health

Benefits Trust Board of Trustees to make a good faith effort to hire qualified

emerging investment managers; and

generally amend the laws governing the Employees' Retirement System and the

Consolidated Retiree Health Benefits Trust Fund.

By adding

Montgomery County Code

Chapter 33, Personnel and Human Resources

Sections 33-60B and 33-162A

Boldface

Underlining

[Single boldface brackets]

Double underlining

[[Double boldface brackets]]

* * *

Heading or defined term.

Added to existing law by original bill.

Deletedjrom existing law by original bill.

Added by amendment.

Deletedjrom existing law or the bill by amendment.

Existing law tmaffected by bill.

The County Council for Montgomery County, Maryland approves the following Act:



Bill No. 2-12

1

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Sec. 1. Sections 33-60B and 33-162A are added as follows:

33-60B.

Emerging Investment Managers.

4

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ill

Legislative findings.

ill

Emerging investment managers, including businesses owned by

women, minorities and disabled individuals, should receive an

equal opportunity to provide investment management services

to the Board of Investment Trustees.

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ill

The

Board of Investment Trustees has adopted

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policy

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requiring its staff to identify qualified emerging investment

managers to participate in an investment manager search,

including regular monitoring of investment managers.

ill

Expanding

(Q)

opportunities for emerging investment managers

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will increase competition.

Definitions.

As used in this Section:

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Assets

means total client assets managed by an investment manager.

Emerging investment manager

means:

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an investment manager with assets or product assets below the

75

th

percentile of their respective peer group; or

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new or developing investment manager.

New or developing investment manager

means an investment

manager:

(I) raising its first or second private institutional investment fund;

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(2)

creating its first institutional product.

Product Assets

means client assets managed

Qy

an investment

manager in

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single strategv.

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Bill No. 2-12

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i£)

Consistent with the fiduciary duties established in Section 33-61C, the

Board must make

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good faith effort to remove any barriers that limit

participation

Qy

qualified emerging investment managers to manage

funds for the Employees' Retirement System.

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The Board must adopt guidelines to identify and evaluate qualified

emerging investment managers.

procedures for:

The guidelines must include

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identifying possible firms;

reviewing, evaluating and interviewing emergmg investment

managers on an ongoing basis; and

maintaining research files on emerging investment managers.

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The Board must report annually to the Council and the Executive on

compliance with this Section on or before September

1

for the prior

fiscal year. The report must:

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ill

ill

identify each emerging investment manager used during the

fiscal year;

list the percentage and dollar value of the assets of the trust

fund,

Qy

investment sector, managed

Qy

each emerging

investment manager; and

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ill

describe the good faith effort made to include qualified

emerging investment managers in the procurement process

during the fiscal year.

33-162A.

Emerging Investment Managers.

(§)

Legislative

findings.

ill

Emerging investment managers, including businesses owned

Qy

women, minorities and disabled individuals, should receive an

53

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Bill No. 2-12

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equal opportunity to provide investment management services

to the Consolidated Retiree Health Benefits Trust Board.

ill

The Board has adopted

~

policy requiring its staff to identify

qualified emerging investment managers to participate in an

investment manager search, including regular monitoring of

investment managers.

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ill

(hl

Expanding opportunities for emergmg investment managers

will increase competition.

Definitions.

As used in this Section:

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Assets

means total client assets managed

Qy

an investment manager.

Emerging investment manager

means:

ill

an investment manager with assets or product assets below the

75

th

percentile of their respective peer group; or

ill

~

new

or developing investment manager.

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New or developing investment manager

means an investment

manager:

(1)

raising its first or second private institutional investment fund;

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(2)

creating its first institutional product.

Product Assets

means client assets managed

Qy

an investment

manager in

~

single strategy.

ill

Consistent with the fiduciary duties established in Section 33-163, the

Board must make

~

good faith effort to remove any barriers that limit

participation

Qy

qualified emerging investment managers to manage

funds for the Consolidated Retiree Health Benefits Trust Fund.

79

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Bill No. 2-12

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The Board must adopt guidelines to identify and evaluate qualified

emerging investment managers.

procedures for:

(i)

(ii)

identifying possible firms;

revlewmg,

evaluating

and

interviewing

emergmg

The guidelines must include

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investment managers on an ongoing basis; and

(iii)

maintaining research files on emerging investment

managers.

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ill

The Board must report annually to the Council and the Executive on

compliance with this Section on or before September

1

for the prior

fiscal year. The report must:

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ill

identify each emerging investment manager used during the

fiscal year;

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ill

list the percentage and dollar value of the assets of the trust

fund, !2y investment sector, managed !2y each emerging

investment manager; and

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ill

describe the good faith effort made to include qualified

emerging investment managers in the procurement process

during the fiscal year.

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Approved:

101

Roger Berliner, President, County Council

Date

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Approved:

103

Isiah Leggett, County Executive

Date

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LEGISLATIVE REQUEST REPORT

Bill 2-12

Personnel- Retirement Trust Funds - Emerging Investment Managers

DESCRIPTION:

This Bill would encourage the Board of Investment Trustees and the

Consolidated Retiree Health Benefits Trust Board (Boards) to continue

their current efforts to provide opportunities for emerging investment

managers to manage some of the assets of the Employees' Retirement

System Trust Fund and the Consolidated Retiree Health Benefits Trust

Fund, consistent with their fiduciary duties.

The Bill would codify the current procurement policies used by each

Board which requires all investment managers who meet the stated criteria

to be included in a search for a new investment manager. The Bill would

also require the Boards to report annually to the Executive and the Council

on the results of their good faith efforts to include emerging firms.

PROBLEM:

GOALS AND

OBJECTIVES:

The goal of this Bill is to provide opportunities for emerging investment

managers to manage some of the assets of the Employees' Retirement

System Trust Fund and the Consolidated Retiree Health Benefit Trust

Fund.

The Boards and the County Attorney's Office have reviewed this bill.

See Fiscal and Economic Impact Statement.

COORDINATION:

FISCAL IMPACT:

ECONOMIC

IMPACT:

EVALUATION:

EXPERIENCE

ELSEWHERE:

See Fiscal and Economic Impact Statement.

N/A

The State of Maryland, along with several other state and local pension

systems, have recently enacted similar policies and laws requiring a

pension system's governing body to make a good faith effort to use

emerging managers.

SOURCE OF

INFORMATION:

Linda Herman, Board of Investment Trustees

Amy Moskowitz, County Attorney's Office

APPLICAnON

WITHIN

MUNICIPALITIES:

PENALTIES:

NI

A

N/A

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OFFICE OF THE COUNTY EXECUTIVE

ROCKVILLE, MARYLAND 20850

. lsiah Leggett

County Executive

MEMORANDUM

December 19, 2011

TO:

FROM:

SUBJECT:

Bill _

- Personnel - Retirement - Emerging Investment Managers

I am transmitting for introduction at Council a bill that would amend the County

Code to require the Boards overseeing the investment programs for the Employees' Retirement

System (ERS) and the Consolidated Retiree Health Benefits Trust (CRHBT) to continue their

current efforts to include emerging investment managers in the procurement of services for the

investment programs. I am also transmitting a Legislative Request Report and Fiscal and

Economic Impact Statement for the bill.

The bill would require the Boards to make a good faith effort to use emerging

investment managers defined as: (1) an investment manager with assets or product assets below

the 7

Sth

percentil e of their respective peer group; or (2) a new or developing investment manager.

The current Service Provider Procurement Policies (policies) of the Boards

require the Boards to include emerging investment managers in searches if the firms meet the

search criteria. The Policies require special efforts be made by the Boards' staff and its

consultants to ensure identification of possible eligible investment managers to participate in the

search process, including regular monitoring of investment managers and maintenance of

research files on such investment managers to assist efforts when searches begin. In addition,

the Boards receive quarterly reports from Board staff on meetings conducted with emerging

investment managers and their analysis of the firms.

As of November 30, 2011 the Board of Investment Trustees committed

approximately 6% of ERS assets with finns that were emerging investment managers when

hired.

I am proposing this legislation to

codify

the current procurement policies used by

the Boards which require all service providers who meet the stated criteria to be included in

searches conducted by the Boards. The primary pmpose of the legislation is to ensure that all

service providers are afforded the opportunity to participate in procurement searches conducted

by the Boards, to provide full transparency of the procurement process, and to ensure that the

montgomervcountymd.gov/311

(j)



Roger Berliner, Council President

December 19,2011

Page 2

intent and goals of the current procurement practices remain in place regardless of future changes

in Board membership due to terms expiring, changes to Board policies, or changes in Board

Staff. The legislation would also require an annual report on efforts made by the Board to

include emerging service providers.

Thank you for your prompt consideration of this bill.

Attachments (3):

Proposed Legislation

Legislative Request Report

Fiscal and Economic Impact Statements



OFFICE OF MANAGEMENT AND BUDGET

Isiah Leggett

County Executive

Jennifer

A.

Hughes

Director

MEMORANDUM

December 9, 2011

TO:

FROM:

SUBJECT:

Roger Be!liner resident, County Council

P

Jennifer

es,

Director

Council B XX-II - Personnel- Retirement - Emerging Investment

Managers

Attached please find the fiscal and economic impact statements for the above

referenced legislation.

JAH:hv

Attachments

c: Kathleen Boucher, Assistant Chief Administrative Officer

Lisa Austin, Offices of the County Executive

Joy Nurmi, Special Assistant to the County Executive

Joseph F. Beach, Director, Department of Finance

Patrick Lacefield, Director, Public Information Office

Michael Coveyou, Department of Finance

Linda Herman, Executive Director, Board of Investment Trustees

Amy

Moskowitz, Office ofthe County Attorney

Helen ValJone, Office ofManagement and Budget

Naeem Mia, Office of Management and Budget

Blaise DeFazio, Office of Management and Budget

Office of the Director

10

1 Monroe Street, 14th Floor • Rockville, Maryland 20850 • 240-777-2800

www.montgomerycountymd.gov

montgomerycountymd.goY/311

240-773-3556 TTY



Fiscal Impact Statement

Council Bin

XX-U-

Personnel- Retirement - Emerging Investment Managers

1. Legislative Summary

The biU would amend the County Code to encourage the Boards overseeing the investment

programs for the Employees' Retirement System (ERS) and the Consolidated Retiree Health

Benefits Trust (CRHBT) to continue their current efforts to include emerging investment

managers in the procurement of services for the investment programs. The Bill would

require the Boards to make a good faith effort to use emerging investment managers defmed

as:

• an investment manager with assets or product assets below the 75

th

percentile of their

respective peer group; or

• a new or developing investment manager

The current Service Provider Procurement Policies (Policies) require the Boards to include

emerging investment managers in searches

ifthe

firms meet the search criteria. The Policies

require special efforts be made by the Boards' staff and its consultants to ensure

identification ofpossible eligible investment managers

to

participate in the search process,

including regular monitoring ofinvestment managers and maintenance of research files on

such investment managers to assist efforts when searches begin. In addition, the Boards

receive quarterly reports from Board staff on meetings conducted with emerging investment

managers and their analysis of the

fIrmS.

The bill also requires annual reporting to the County

Council on efforts made by the Boards to include emerging investment managers.

2. An estimate of changes in County revenues and expenditures regardless of whether the

revenues or expenditures are assumed in, the recommended or approved budget.

Includes source of information, assumptions, and methodologies used.

This bill has no impact to revenues or expenditures.

3. Revenue and expenditure estimates covering at least the next 6 fiscal years.

This bill has no impact to revenues or expenditures.

4. An actuarial analysis through the entire amortization period for each bill that would

affect retiree pension or group insurance costs.

Not Applicable

5. Later actions that may affect future revenue and expenditures

if

the bill authorizes

future spending.

This change will not result

in

subsequent government action that will impact future revenues

and expenditures.

1



6.

An

estimate of the staff time needed to implement the bill.

Not Applicable

7. An explanation of how the addition of new staff responsibilities would affect other

duties.

No change in staff'responsibilities.

8. An estimate of costs when an additional appropriation is needed.

Not Applicable

9. A description of any variable that could affect revenue and cost estimates.

Not Applicable

10. Ranges of revenue or expenditures that are uncertain or difficult to project.

Not Applicable

11.

If

a bill is likely to have no fiscal impact, why that

is

the case.

The bill codifies the current procurement policies

used

by the Boards which require all

investment

managers

who meet the stated criteria to be included in searches conducted by the

respective Boards.

12. Other fiscal impacts or comments.

Not Applicable

13. The following contributed to and concurred with this analysis!

Linda Herman. Executive Director, Board of Investment Trustees and Consolidated Retiree

Health Benefits Board

Amy Moskowitz, Counsel to the Boards, Office ofthe County Attorney

Helen Vallone, Office of Management and Budget

Naeem Mia, Office of Management and Budget

Blaise DeFazio, Office of Management and Budget

12-j~{

U

Date

2



Economic Impact Statement

Council Bill

XX-U,

Qualified Emerging Investment Managers

Background:

This legislation requires the Boards overseeing the County's Retirement Plans and the

Consolidated Retiree Health Benefits Trust to make a good faith effort to hire qualified emerging

investment managers. A qualified emerging investment manager is defined as an investment

manager with assets or product assets below the 7S

tJ1

percentile of their respective peer group; or a

new investment manager who is raising its first or second private institutional investment fllnd; or

creating its first institlltional product. This legislation codifies current policy and practices of

both Boards.

1. The sources of information, assumptions, and methodologies used.

Not Applicable. This legislation codifies current policy and practice, and its only requirement

that is not currently in place is a requirement for an annual report, which the Boards state can

be handled with existing resources.

2. A description of any variable that could affect economic impact estimates.

Not Applicable

3. The bill's positive or negative effect, if any, on employment, spending, saving, investment,

incomes, and property values in the County.

Not Applicable

4. If a bill is likely to have no economic impact, why that is the case.

This Bill codifies current policy and practice; therefore there is no economic impact.

5. The following contributed to and concurred with this analysis: David Platt, Finance; Mike

Coveyou, Finance

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