Creating a request for proposal (RFP) is a crucial step when searching for investment management services. The RFP outlines the client’s needs and allows investment managers to propose customized solutions. An effective RFP facilitates the selection process by enabling easy comparison across respondents. This article provides tips on how to craft an optimized RFP that helps identify the best investment management partner for your specific needs.
Clearly state your investment objectives, constraints and preferences
The RFP should unambiguously communicate your investment goals, risk tolerance, asset allocation policy, liquidity needs and any other relevant constraints or preferences. Be as specific as possible about your return objectives, risk parameters, liquidity requirements, tax considerations, legal/regulatory limitations, ESG guidelines, etc. This information allows investment managers to tailor proposals specifically to your needs.
Ask about the firm’s investment philosophy and process
Understanding the manager’s investment philosophy, strategy and decision-making process is vital in evaluating fit. The RFP should ask detailed questions about how the manager formulates strategy, generates investment ideas, constructs portfolios, manages risk and oversees implementation. Request specifics on the investment approach, research methodology, portfolio construction principles, risk management techniques, trading procedures and other relevant details.
Request information on resources and team experience
Gauge the adequacy of resources behind the investment process, including research depth and capabilities. Ask about biographies of key investment professionals, their qualifications, experience and tenure. Seek data on team size, stability and succession planning. Having an experienced team supporting the investment process often leads to better outcomes.
Inquire about fees, reporting and other operational factors
The RFP provides the context for investment managers to explain their fee structures, account minimums, and reporting standards. Understand all-in fee estimates, how performance-based fees are calculated, and policies on soft dollar commissions. Also request details on operational factors like trading, settlements, proxies, class actions, technology integration, business continuity plans, etc.
Specify required response components and format
Provide clear instructions on the information required from respondents, as well as the desired format and medium of delivery. Standardize proposals for easy comparison by mandating a consistent response framework across all participants. Consider using templates, questionnaires and forms to simplify analysis of RFP responses.
An effective RFP enables you to thoroughly evaluate investment managers and identify the best fit for your specific needs and preferences. Focus on articulating your investment objectives, seeking details on investment process and philosophy, gauging team experience, understanding fees and costs, and standardizing responses.