FOR SFERS CORE PLUS FIXED INCOME SEARCH

RESPONSES TO QUESTIONS FROM PROPOSERS FOR SFERS CORE PLUS FIXED INCOME SEARCH To All Proposers: Please review this document for announcements and responses to all the questions posed by investment managers regarding this search. The deadline to submit questions was January 5, 2015. ANNOUNCEMENTS: There have been no announcements related to this search as of January 12, 2015. QUESTIONS & ANSWERS: 1. Question concerning qualification: The lead portfolio manager and his team managed a fixed income portfolio while at our prior firm, ABC Firm. That team remained intact and started XYZ Firm. The XYZ Manager Core plus strategy since funded nearly 5 years ago is ranked at the top relative to risk adjusted returns. Would it be possible to be allowed to compete for this assignment? RESPONSE: As noted in the minimum qualifications in the RFP: Firms that have a break in a continuous performance history due to an intact team departing one firm to join another may be considered. Such firms are required to provide clear explanations of the relevant dates and components of the history and the rationale for the firm and team to be considered intact following a departure from one firm to join another. As part of your RFP response, proposers with a non-contiguous track record should provide, in Excel, a linked track record that includes the team s track record (monthly, gross of fee composite returns) from the prior firm and the track record for the new firm (monthly, gross of fee composite returns). Proposers should use the monthly returns of the Barclays Aggregate for any break in the two track records and clearly explain all relevant dates. Assuming this linked track record meets the minimum qualifications of the search as outlined in the RFP, the product can be considered. 2. I know this is for Core Plus but you specifically reference 'XYZ Manager: Core Bond'. To confirm, can you clarify we can respond with our Core Plus product? RESPONSE: Assuming your Core Plus product meets the minimum qualifications of the search outlined in the RFP, the product can be considered. Eligible products for this search include Core Fixed Income, Core Plus Fixed Income, and less constrained multi-sector fixed income strategies, as outlined in minimum qualification #6 of the RFP. 3. Last week we received a message from evestment regarding a Core Plus Fixed Income RFP for The City & County of San Francisco Employees Retirement System (SFERS). The three strategies we received inquiries on were for XYZ Manager's Income, Bond, and Strategic Income Opportunities mutual funds. In the RFP I see a restriction on investing in U.S. companies involved in the production or distribution of tobacco products or companies doing business in Sudan. Given that these strategies are mutual funds we're unable to 1

customize the portfolio and therefore it probably doesn't make sense to complete the RFP, please let me know if you think otherwise. RESPONSE: SFERS prefers a separate account where SFERS tobacco and Sudan restrictions can be accommodated; however, we will also consider mutual and commingled options where custody, fees, trading, or other issues make a mutual or commingled fund in SFERS best interest. RFP respondents should make appropriate fee proposals in their RFP as fees are a component of the RFP evaluation process. 4. Our U.S. High Yield Strategy meets all of the excess return and Information Ratio requirements versus the Barclay U.S. Aggregate Index. Will you accept a U.S. High Yield Strategy vs the Barclay U.S. HY Index? RESPONSE: Eligible products for this search include Core Fixed Income, Core Plus Fixed Income, and less constrained multi-sector fixed income strategies, as outlined in minimum qualification #6 of the RFP. The benchmark for the performance criteria in this RFP is the Barclays Aggregate as noted in the minimum qualifications. 5. We received RFPs for two strategies in CorePlus search for SFERS. One is for standard CorePlus, and the other is for SRI version. We will respond to both, but wanted to see about a protocol that you prefer. We can submit two separate responses, no problem. However, most information will be identical. So we could instead submit one response, with an addendum on the SRI answers at end. This could save you and SFERS time in reviewing responses. However, if this does not meet response protocols, we understand. Can you advise on this question? RESPONSE: A single RFP response is acceptable. 6. Question regarding the SFERS Core Plus RFP: One of the minimum qualifications is: The Proposer must have at least a continuous seven-year performance history for Core Fixed Income, Core Plus Fixed Income, or a less constrained multi-sector fixed income strategy for the period ending September 30, 2014. Our Core strategy has the 7+ year track record, but our Core Plus strategy has less 7 years. Are we limited to submitting only for the qualified strategy (Core) or can we also submit for Core Plus (5+ year track record)? Our Core Plus strategy is managed in the same manner as Core, but with an allocation to high yield. RESPONSE: The qualifications for at least a 7-year track record as of 9/30/14 must be met as stated. 7. We recently received several notices from evestment for the SFERS Core Plus search. These notices referenced four XYZ Manager products, which are: Core Fixed Income, Core Plus, Core Plus Full Discretion and Multisector Full Discretion. evestment referred questions on the search to you. My questions are focused on product suitability. Is the intent of this search to evaluate products from core to opportunistic, or focus more on core plus strategies? We are happy to respond to the RFP for each of these products, but want to check their suitability. Any advice you can provide is appreciated. RESPONSE: The purpose of this search is to broaden SFERS Core and Core Plus Fixed Income manager roster. 2

This search is for bond mandates benchmarked to the Barclays Aggregate and/or Universal Index, though managers may utilize other benchmarks and be permitted to invest in non-benchmark sectors such as high yield, emerging market debt, and non-dollar bonds. In addition, the search may include products that are less constrained (e.g., less sector & duration constrained versus the Barclays Aggregate or Barclays Universal) than typical for Core Plus strategies. 8. Question 22 of the RFP states: Has your firm or any officer or employee at your firm (or ex-officer or employee while employed at your firm) ever been involved in litigation where an allegation of a breach of fiduciary responsibility was made. Please confirm that it relates to litigation against (i) current officers and current employees, regardless of whether the litigation occurred while employed at the firm and (ii) former officers and former employees, but only while employed at the firm. Please consider providing a time frame for all litigation-related inquiries. RESPONSE: Confirmed. 9. Our Core Plus product meets the excess return and information ratio minimums for the 3-year and 5-year periods ended September 30, 2014. However, we fall short for the 7-year mark. Is there any flexibility with regard to meeting this qualification? If we meet the hurdles for the 3- and 5-year time period but not for the 7-year time period, could our strategy still be considered for inclusion in this search? RESPONSE: The qualifications for at least a 7-year track record as of 9/30/14 must be met as stated. 10. Would it be beneficial if we provided a sample investment management agreement with the RFP? RESPONSE: That is not necessary. Please refer to Question 15 of Appendix A of the RFP: 15. Does your firm warrant that it has reviewed the form of Investment Management Agreement, attached as Exhibit D to this RFP, and that the firm s counsel has reviewed that agreement? Please identify any changes you would request to that Investment Management Agreement, either by providing a marked revised copy of the agreement with your requested changes or by identifying each section of the agreement where you would request changes and specifying the changes requested. Please warrant that the marked-up copy of the Investment Management Agreement or list with agreement sections and the specific changes requested to those sections represents your full list of requested changes. 11. Question concerning Appendix D., For of Investment Management Agreement, Section 1.10 (Investment Manager Not Acting As Principal) and Section 1.21 (Proxy Voting): Please clarify whether we would have the authority to vote proxies in respect of corporate actions? RESPONSE: As stated in Question 15 of Appendix A of the RFP: Please identify any changes you would request to the Investment Management Agreement, either by providing a marked revised copy of the agreement with your requested changes or by identifying each section of the agreement where you would request changes and specifying the changes requested. Please warrant that the marked-up copy of the Investment Management 3

Agreement or list with agreement sections and the specific changes requested to those sections represents your full list of requested changes. 12. Question concerning Appendix D., For of Investment Management Agreement, Section 1.11 (Brokerage): We would like to confirm that we may aggregate orders with those of other clients, as we believe that would be disadvantaged if we did not have this ability. 13. Question concerning Appendix D., For of Investment Management Agreement, Section 2.01 Fee Structure: The Fee Schedule is subject to annual adjustment by the Retirement System upon thirty (30) days advance written notice.: Please elaborate on whether you expect to make annual adjustments to the fee agreed upon with the investment manager. Additionally, what is meant by adjustment? Please confirm that both parties (the Retirement System and the Investment Manager) will need to agree if a fee adjustment is requested. 14. Question concerning Appendix D., For of Investment Management Agreement, Section 2.01 Fee Structure: In no event shall the annual compensation amount of this Agreement exceed [ ]($[ ]).: Is this expected to be incorporated into the final IMA with the investment advisor? What is the calculation methodology in order to determine the maximum fee? RESPONSE: SFERS will typically negotiate a 3 to 5 year Investment Management Agreement and the Maximum Fee for the IMA will reflect the term (number of years) of the IMA, the estimated initial assets for the mandate and the negotiated fee schedule. 15. Question concerning Appendix D., For of Investment Management Agreement, Section 1.23 (Key Personnel): We would like to confirm that a key personnel replacement or change can be made without prior consultation with San Francisco. San Francisco would be notified immediately after the event, if there was a change made. 16. Question concerning Appendix D., For of Investment Management Agreement, Section 3.01(m) (Reporting Assistance): As the investment advisor we do not assume responsibility for evaluating and making class action filings on behalf of our clients. Will this be an issue for San Francisco? 17. Given that there are a number of local and state ordinances and laws that are required to be complied with by the successful investment manager, will it be the obligation of the successful investment manager to monitor amendments to those ordinances and laws enumerated in the contract, or will the successful manager be able to rely on the Retirement System (or its designee) to notify the successful investment manager of any amendments? 4

RESPONSE: This question is not a request for interpretation or clarification of RFP questions or procedures. 18. Question concerning Appendix D., For of Investment Management Agreement, REPRESENTATIONS, WARRANTIES AND COVENANTS OF INVESTMENT MANAGER Section (o) Misstatements and Omissions: Does this pertain to documents related to client reporting for this mandate? 19. We will be proposing two investment strategies that we believe fit the objectives for this potential mandate. Would SFERS prefer two proposals under separate cover or a combined proposal from asset managers who will be submitting multiple investment strategies for consideration? RESPONSE: If the strategies are nearly identical with the same team, philosophy and process, a single RFP is acceptable. If the products differ more meaningfully, two RFP responses are preferred. 20. Should the Investment Manager submit a mark-up to the IMA or a list of issues to discuss with the RFP submission? RESPONSE: Either is acceptable. Please refer to the response in this document to Question 11. 21. Will the Investment Manager be allowed to delegate investment management services to foreign affiliated Investment Managers? Will the Investment Manager be able to delegate non-investment management services, such as fee billing and trade support to unaffiliated third parties? RESPONSE: The firm selected must be directly responsible for the management of the account and the personnel responsible for management of the account must be employees of the firm. Therefore, the firm selected must not sub-contract investment management to a third party. 22. Can the Investment Manager terminate the IMA? 23. Does the Retirement Board have its own ISDAs/FCM Agreement or will it use the Investment Manager's? RESPONSE: This question is not a request for interpretation or clarification of RFP questions or procedures. 24. Must the MFN apply to all other accounts, or can it be tailored to apply only to other accounts that are similar in size and guidelines? 25. Can the confidentiality section be amended to allow disclosure to the Investment Manager's affiliates, brokers and 3rd parties who have a duty of confidentiality to the Investment Manager? 5

26. Question concerning Minimum Qualifications Section IV. A 3 that All personnel responsible for the account must be Proposer s employees and IMA Appendix A, Warranties, question # 7 of the RFP, Does your firm warrant that it will be directly responsible for the management of the account and that all personnel responsible for the account will be employees of the firm? : XYZ Manager is a wholly owned subsidiary of ABC Manager. We utilize our parent company for our investment back office functions and we are all employees of ABC Manager. Does all affiliated personnel count as employees of the firm? RESPONSE: The firm selected must be directly responsible for the management of the account and the personnel responsible for management of the account must be employees of the firm. Therefore, the firm selected must not sub-contract investment management to a third party. 27. Do you currently use pooled vehicles for any portion of your current Fixed Income portfolio? If so, which asset classes? RESPONSE: SFERS utilizes pooled vehicles for certain opportunistic fixed income funds, an emerging market debt portfolio, and some core fixed income portfolios (including an index fund). However, any pooled vehicles, such as commingled trusts, utilized by the proposer to fulfill this mandate must be under the management of the proposer. The proposer may not sub-contract the management of the pooled vehicles to an unaffiliated third party. 28. Do you have credit quality limits within your investment guidelines? If so, can you please provide them? RESPONSE: Guidelines are established in conjunction with the successful manager after Board approval. 29. Do you have any specific security type restrictions (i.e., 144a's)? RESPONSE: Guidelines are established in conjunction with the successful manager after Board approval. 30. Do you have ISDAs, futures, options and collateral agreements in place with brokers? RESPONSE: This question is not a request for interpretation or clarification of RFP questions or procedures. 31. In Section 2.01 of the sample Investment Management Agreement, it states that "the Fee Schedule is subject to annual adjustment by the Retirement System upon 30 days' advance written notice." Please confirm the intent of this statement and specifically that the Retirement System will be bound by the Fee Schedule agreed upon in the Investment Management Agreement until the Retirement System and the Investment Manager agree in writing otherwise. 32. In the same Section 2.01, there is a reference to an annual compensation amount. Can SFERS provide some additional clarity on this limit regarding annual compensation? For instance, is there a dollar/percentage 6

limitation, how is the limit calculated, and how often does the limit change? Would the annual maximum be reset mid-term to accommodate additional contributions to the account? RESPONSE: Please refer to the response in this document to Question 14. 33. Section 4.01 of the sample Investment Management Agreement contains extensive insurance requirements. We would like to confirm the Investment Manager will have the ability to discuss and negotiate these provisions once selected. For instance, if the Investment Manager cannot name the Retirement System as an additional insured on the E&O policy, will they be able to address this during the negotiation of the IMA? 34. Section II - Scope of Work, states that the investment management services must be within the Statement of Objectives, Guidelines and Procedures as outlined in the Investment Policy (Appendix E) of the RFP. In reviewing the Investment Policy, there were no specific investment guidelines/limits for the Core Plus portfolio. Are there guidelines specific to the Core Plus mandate that SFERS could provide to managers? RESPONSE: Guidelines are established in conjunction with the successful manager after Board approval. 35. Our firm s core and core plus products meet the minimum requirements except for the seven-year track record requirement. On September 30, 2015 our core and core plus products will have a seven-year track record. Six-year excess returns exceed 1.00% and information ratios exceed 0.30. Please see the below table with our 6-year results. Would a submission be considered on our core and core plus products? Composite 6-year Excess Returns 10/08-9/14 using Barclays U.S. Aggregate 6-year Information Ratios 10/08-9/14 using Barclays U.S. Aggregate Core Aggregate Fixed Income 3.06 1.29 Core Plus Fixed Income 4.37 0.78 RESPONSE: The qualifications for at least a 7-year track record as of 9/30/14 must be met as stated. 36. Question concerning Section VIII (A) Standard Contract Provisions on page 11: Has SFERS ever pulled out of negotiations and/or sued an investment manager for damages in the past? RESPONSE: This question is not a request for interpretation or clarification of RFP questions or procedures. 37. Question concerning Appendix D: Form of Investment Management Agreement, under Section 1.04 Fiduciary Duties: Standard of Care: Is SFERS open to changes to this provision? As a large asset manager, we 7

may have the potential for conflicts of interest which could result in numerous consents letters for SFERS to sign throughout the management of the account. 38. Question concerning Appendix D: Form of Investment Management Agreement, under Section 1.11 Brokerage: SFERS can provide managers with a list of brokerage firms it wants the managers to utilize. With this restriction in place, we may not get best execution. Is this acceptable? If SFERS changes the list of brokers/dealers managers can t place orders with, will SFERS notify the managers? Can a manager place orders with brokers/dealers that are related parties or affiliated? 39. Question concerning Appendix D: Form of Investment Management Agreement, under Section 8.10 Compliance with Legal Requirements: Throughout the management of the account, can SFERS cite and monitor the changes on the federal and state laws that managers must comply with and notify the manager of such changes? 40. Question concerning Appendix D: Form of Investment Management Agreement - Can we add a termination clause with respect to the manager s termination rights? 41. XYZ Manager manages multi-advisor portfolios based on our research and long standing relationships with the leading fixed income managers globally. Would the Board and Angeles entertain a multi-advisor approach to managing this portion of the portfolio? RESPONSE: The preference is for a single manager portfolio. 42. Within a separate account, XYZ Manager could offer a truly customized portfolio that complements the other Fixed Income holdings of the Retirement System. Would the Board and Angeles be willing to work with XYZ Manager to construct a custom portfolio after analysis of total portfolio holdings and exposures? RESPONSE: The preference is for a single manager portfolio. 43. Performance for the Fund solution we will submit in the RFP has been robust. That performance has been delivered at lower tracking error levels versus most other single manager approaches. We meet, by a significant margin, the minimum performance requirements over the 3 and 5 years ending September 30, 2014. Over 7 years we fall just short of the 1.00% performance watermark. We think this is a demonstration of where we are, and have been, in the Fixed Income and active management cycle and hope this does not automatically preclude us from being considered as a provider. Please confirm. RESPONSE: The qualifications for at least a 7-year track record as of 9/30/14 must be met as stated. 8

44. What role is the Core Plus Fixed Income strategy expected to play as part of the overall portfolio. Specifically: i. What are the return expectations for this portion of the portfolio? Is it alpha of 1.00%, in line with the expectations of past performance? ii. What are the tracking error expectations for this portion of the portfolio? iii. Do we need to consider correlation expectations with your other Fixed Income as well as broader portfolio allocations? RESPONSE: Please refer to the response in this document to Question 7. Expectations for excess return, tracking error and correlations, among other factors, will be considered as part of the search evaluation process but are not targeted at this time. 45. For the table in Question #82 in Appendix A, there is not a category for Non US Investment Grade $ Denominated so please advise if a column should be added or if should be included in Other category? RESPONSE: Proposers may modify the table to add a column for Non-US Investment Grade $- denominated. 9