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REQUEST FOR PROPOSAL
by the
STATE OF OHIO
BUREAU OF WORKERS' COMPENSATION
for
THE THIRD FRONTIER PROJECT
November 10, 2003Bid # B04017
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Table of Contents
Section Page
1.0 BACKGROUND AND NATURE OF PROJECT 31.1 Purpose of the Request for Proposals1.2 BWC Background 41.3 BWC Investments Program Background1.4 Scope Of Services
2.0 CALENDAR OF EVENTS AND RFP COMMUNICATIONS 52.1 Calendar of Events2.2 Proposal Submissions; Changes and Costs Not
Reimbursable2.3 Communications Prior to RFP Opening 62.4 Communication Restrictions2.5 Changes To The Request For Proposals By BWC2.6 Proposal Submission
3.0 GENERAL REQUIREMENTS 73.1 Contract3.2 Headings3.3 Related Contracts3.4 Conflicts of Interest3.5 Time Of Performance3.6 The Resulting Contract3.7 Governing Law - Severability 83.8 Default By The Vendor3.9 No Additional Waiver Implied3.10 Publicity3.11 Conditions Precedent3.12 Equal Employment Opportunity3.13 Compliance With The Law 93.14 Assignment3.15 Cancellation of Contract3.16 Drug-Free Workplace3.17 Ohio Elections Law3.18 Confidentiality3.19 Public Records3.20 Unresolved Finding For Recovery
4.0 PROPOSAL FORMAT 104.1 Cover Letter/Executive Summary4.2 Attachment B Request for Information4.3 Proof of License4.4 Proof of Insurance4.5 References
5.0 EVALUATION OF RESPONSES5.1 Responsive and Responsible 115.2 Evaluation Phases
Investment Policy and Guidelines 12Attachment B 26
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REQUEST FOR PROPOSALby the
STATE OF OHIOBUREAU OF WORKERS' COMPENSATION
forINVESTMENTS in OHIO’S THIRD FRONTIER PROJECT
November 10, 2003
1.0 BACKGROUND AND NATURE OF PROJECT
1.1 Purpose of the Request for Proposals
BWC is interested in acquiring the services of Investment Fund Managers to exercise full investmentdiscretion and to manage a portion of the assets of the funds under its control to expand Ohio’s high-tech research capabilities, promote start-up companies and to complement the goals of Ohio’s ThirdFrontier Project.
The Bureau will provide private equity venture capital to Investment Fund Managers that focus on fund-ing new companies or existing companies to bring about the commercialization of technology within Ohioto bring jobs and economic growth to the state. An emphasis will be placed on companies in these in-dustry segments:
� Advanced Materials� Biosciences� Information Technology� Instruments, Controls, Electronics and Advanced Manufacturing Technologies� Power and Propulsion
Additional information on the Third Frontier Project can be found at www.thirdfrontier.com.
1.2 BWC Background
The Ohio workers’ compensation system is the largest exclusive state insurance fund in the UnitedStates, with assets of $13.5 billion and annual insurance premiums and assessments of $2.3 billion.BWC exercises fiduciary authority with respect to the Ohio State Insurance Fund (OSIF). This fund isheld for the benefit of the injured workers and employers of Ohio. It is from this fund that all claims forboth medical and compensation for disability benefits are paid with the exception of self-insuring claims.Self-insuring employers have been granted the status of self-insurance by demonstrating the ability tomeet certain obligations set forth in Ohio Revised Code §4123.35. Self-insuring employers administertheir own workers’ compensation claims and are monitored by BWC. Presently, BWC processes claims,pays compensation and medical benefits to injured workers and medical providers, and underwritesworkers’ compensation coverage for employers doing business in Ohio. BWC also offers safety trainingand accident prevention programs to employers and helps injured employees return to work throughrehabilitation programs.
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BWC December 31, 2002 Statistics
1.3 BWC Investment Program Background
The Third Frontier Project’s objective is to promote the development of new industries, driven by newtechnologies, within the state of Ohio. Industries such as biomedical and life sciences, information sci-ences, and industries that link high tech and manufacturing (materials, energy; instruments, controls,and electronics) will be targeted. It is anticipated that both public and private institutions in Ohio willcommit resources to develop and apply technologies to build advanced manufacturing growth and toform a critical mass of private and public research, capital, and entrepreneurship to create new firms andnew industries.
The Ohio BWC seeks to support the Third Frontier Project by investing in Ohio based companies thatwill:
� Build world-class R&D stature in areas of core competency that are relevant to the existing com-petitive advantage of Ohio’s industry and in which the state’s higher education and private re-search organizations can excel jointly.
� Create an entrepreneurial economy permeating the state’s public and private organizations� Promote a proactive business climate with incentives conducive to development and applications
in advanced manufacturing and technology industries. � Develop, retain, and expand the state’s workforce to ensure a sufficient intellectual, entrepre-
neurial and technical talent base.� Provide competitive rates of return consistent with the overall market for venture capital invest-
ments with these objectives.
In accordance with the Ohio Revised Code Section 4123.44, the Administrator seeks to retain the serv-ices of investment fund managers to manage the investment of the surplus and reserve belonging tothe Ohio State Insurance Fund.
1.4 Scope Of Services
Proposals are hereby solicited for multiple Investment Fund Managers that will allow the Bureau to pro-vide venture capital or other similar funding arrangements to promote the development of new compa-nies with a focus on high technology and manufacturing and/or new jobs within existing companiesthroughout the state of Ohio. The Bureau will select investment managers that have the capacity toidentify and support companies that will foster an entrepreneurial economy within Ohio and to expandand support the state’s workforce. The Bureau will give preferential consideration to Ohio based man-agers and to Ohio based minority managers. The Investment Fund Managers that will be determined to be the “best fit” for these BWC investmentobjectives will have significant competitive performance records and will be able to demonstrate theircapacity, strategy, and degree of activity in developing companies with a focus on technology related tothe targeted industries. These managers will be recommended to the Bureau’s Oversight Commission tobe placed on a list of Approved Investment Fund Managers. Depending upon the amount of funds
Asset Class Market ValueDomestic Fixed Income $8,242,982,544
Domestic Equity $3,578,805,776
$1,275,934,537
Private Equity $122,275,189
Short Term Assets $55,729,255
BWC Total Assets $13,275,727,301
International Equity
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available and each Approved Investment Fund Manager’s capacity as measured by its current assetbase, contracts may be awarded to several vendors. Managers that are approved but not initiallyselected for a contract shall remain on the list of Approved Investment Fund Managers. If theperformance of any selected Investment Fund Manager falls below expectations (see Sections VI andVII of Attachment A: Statement of Investment Policy and Guidelines), or other considerations supporttermination of a contract, a replacement Investment Fund Manager will be selected from the list ofApproved Investment Fund Managers. When the list becomes depleted or when it no longer supportsadequate selection options for one or more management styles, a Request For Proposals shall beissued for Investment Fund Managers for the particular style needed.
BWC reserves the right to negotiate a fee with selected vendors. In no event shall the negotiated feeexceed the amount stated in the proposal.
The Investment Fund Managers’ duties, criteria, and objectives are identified in Section II (C) andSections III, IV, V, VI, VII and VIII of Attachment A: Statement of Investment Policy and Guidelines.
2.0 CALENDAR OF EVENTS AND RFP COMMUNICATIONS
2.1 Calendar of Events
The following timeframes have been established for completing this proposal process:
RFP Issued: November 10, 2003Proposals Due/Opening: 2:00 PM, December 18, 2003
2.2 Proposal Submissions; Changes and Costs Not Reimbursable
It is essential that vendors carefully review all elements in their final proposals. Once opened, proposalscannot be altered. BWC shall not be liable for any costs incurred in responding to this RFP, includingthe costs of proposal preparation and any travel relating to this RFP.
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2.3 Communications Prior to RFP Opening
General assistance will be available to vendors who seek clarification on specific sections of this RFP.However, BWC employees or representatives shall be prohibited from responding to any inquiries wherethere is a potential for bias or favoritism or appearance of impropriety due to potential conflicts of inter-est. Any and all communications relating to this RFP shall be directed to the address and/or facsimilenumber below and shall be made in writing. Communications directed elsewhere and not written mayresult in disqualification of the vendor.
James S. McLean, Chief Investment OfficerOhio Bureau of Workers' Compensation
William Green Building, L-2730 West Spring Street
Columbus, Ohio 43215-2256Fax (614) 466-0818
2.4 Communication Restrictions
From the release of the RFP until vendors are selected and contracts are executed, vendors shall notcommunicate with any BWC staff or staff of BWC’s agents (e.g., contractors, etc.) or the BWC OversightCommission concerning the RFP, except by using the methods described in Section 2.3. Vendors thatattempt any unauthorized communications will be disqualified.
BWC reserves the right to contact vendors after receipt of proposals for clarification of any items withinthe proposal. Nothing in this section shall prohibit BWC from requesting presentations in accordancewith Section 5.2 of this RFP.
2.5 Changes To The Request For Proposals By BWC
BWC may amend specific sections of this RFP at any time during the bidding process. BWC will furnishall amendments to all vendors who have requested an RFP. Should BWC issue an addendum to thisRFP, the submission deadline may be extended for all prospective vendors, if appropriate, toaccommodate changes in proposal content.
2.6 Proposal Submittal
Vendors must carefully review all elements of their final proposals. Once received by BWC, a proposalcannot be altered. Four (4) complete and signed copies of each proposal shall be submitted for evalua-tion. Proposals shall be clearly marked "BWC Third Frontier Initiative RFP, Bid Number B04017” onthe outside of the envelope. FAX transmittals will not be accepted. All copies must be received by BWCtogether and in a timely manner.
Proposals must be received by 2:00 P.M. local time on December 18, 2003. Proposals delivered afterthe deadline will not be accepted nor evaluated, and shall be deemed non-responsive. Proposals willbe opened publicly after the 2:00 P.M. deadline at BWC.
Vendors should allow ample time for delivery to ensure timely receipt by BWC of the proposal. All mailand deliveries can be expected to undergo package security screening (amounting to approximatelyone hour) before receipt in the Purchasing Department. Vendors must anticipate this additional timewhen arranging for mail or delivery of proposals. If attending the opening, vendors must bring photoidentification and should allow for additional time for personal security screening (amounting to approxi-mately twenty minutes) and for package security screening (amounting to approximately one hour) if
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they are also delivering their proposals in person at that time. Submit complete, signed and sealed cop-ies of the proposal to:
BY MAIL OR HAND-DELIVERED:
Ohio Bureau of Workers' Compensation
Purchasing DepartmentWilliam Green Building
30 West Spring Street, Level 24Columbus, Ohio 43215-2256
Please make sure the proposals are delivered to the Purchasing Department on the 24th Floor no laterthan 2:00 PM on December 18, 2003. Proposals delivered to other locations within the building may notbe received by the Purchasing Department in a timely manner. Only proposals received in the Purchas-ing Department by 2:00 PM on or prior to the due date will be opened and considered. Please allowample time for proposals to pass through Security!
3.0 GENERAL REQUIREMENTS
3.1 Contract
The contract consists of this RFP and any written addenda issued by BWC, the response, and theexecuted agreement for services.
3.2 Headings
The headings used in this RFP are for convenience only and shall not affect the interpretation of any ofthe terms and conditions hereof.
3.3 Related Contracts
After award of the contract, the vendor shall not hire or use subcontractors without prior written approvalfrom BWC. All work subcontracted shall be at the expense of the vendor.
3.4 Conflicts of Interest
No personnel of the vendor, who exercises any functions or responsibilities in connection with the reviewor approval of the undertaking or carrying out of any work under this RFP and any resulting contract,shall prior to the completion of said work, voluntarily acquire any personal interest, direct or indirect,which is incompatible, or in conflict with the discharge and fulfillment of such person’s functions andresponsibilities with respect to the work under this RFP and any resulting contract.
Any such person who acquires an incompatible or conflicting personal interest, prior to, on or after theeffective date of any resulting contract, or who involuntarily acquires any such incompatible or conflictingpersonal interest, shall immediately disclose his or her interest to BWC in writing. Thereafter, suchperson shall not participate in any action affecting the work under this contract, unless BWC shalldetermine that in the light of the personal interest disclosed, such person’s participation in any suchaction would not be contrary to the public interest.
3.5 Time Of Performance
The contract shall be binding upon both parties upon receipt by the vendor of a copy of a fully executedagreement and compliance with any and all conditions precedent.
3.6 The Resulting Contract
By submitting a response, the vendor acknowledges that it has read this RFP, understands it, andagrees to be bound by its requirements, terms, and conditions, and further agrees that the contract, asdefined herein, is the complete and exclusive statement of the contract between the parties andsupersedes all responses, oral or written, and all other communications between the parties relating tothe subject matter of the contract. The contract, unless otherwise provided herein, can only be modified
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in writing signed by the vendor and BWC. BWC reserves the right to disqualify any responses whichtake exception to or limit the rights of BWC under the RFP, and the resulting contract.
3.7 Governing Law - Severability
The validity, construction and performance of the contract and the legal relations among the parties tothe contract, shall be governed by and construed in accordance with the laws of the State of Ohio. Ifany provision of the contract or the application of any such provision shall be held by a court ofcompetent jurisdiction to be contrary to law, the remaining provisions of the contract shall remain in fullforce and effect. The parties agree to submit irrevocably to the jurisdiction of Ohio courts.
3.8 Default By The Vendor
BWC declares and the vendor acknowledges that a default shall occur in the event the vendor does notperform in accordance with the performance measures identified in the Statement of Investment Policyand Guidelines, or under-performs when compared to comparable managers in the particular sector andBWC may terminate the contract. BWC declares and the vendor acknowledges that a default shalloccur in the event there is a change in the firm structure, including a change in the investment focus ora material change in personnel, and BWC may terminate the contract. BWC declares and the vendoracknowledges that a default shall occur in the event the vendor becomes subject to regulatory or legalproceedings which BWC judges to be injurious to BWC or to its fiduciary duties, and BWC may terminatethe contract.
3.9 No Additional Waiver Implied
If the vendor fails to perform an obligation or obligations under the contract or otherwise is in default andthereafter such failure or default is waived by BWC, such waiver shall be limited to the particular failure ordefault so waived and shall not be deemed to waive other failure or default hereunder. Waiver by BWCshall not be effective unless it is in writing.
3.10 Publicity
Any use or reference to this RFP by the vendor to promote, solicit, or disseminate information regardingthe scope of the contract is prohibited, unless otherwise agreed to in writing by BWC. BWC agrees tobe used as a reference by the vendor in other State of Ohio competitive bidding situations.
3.11 Conditions Precedent
It is expressly understood by the parties any resulting contract is not binding on BWC until such time asall necessary funds are made available and forthcoming from the appropriate state agencies, and whenrequired, such expenditure of funds is approved by BWC.
3.12 Equal Employment Opportunity
In carrying out this contract, the vendor shall not discriminate against any employee or applicant foremployment because of race, religion, national origin, color, sex, sexual orientation, age, handicap,Vietnam-era veteran status, or disability. The vendor shall ensure that applicants are hired, and thatemployees are treated during employment without regard to their race, religion, national origin, color,sex, sexual orientation, age, handicap, Vietnam-era veteran status, or disability. Such action shallinclude, but not be limited to the following: Employment, Upgrading, Demotion, or Transfer; Recruitmentor Recruitment Advertising; Layoff or Termination; Rates of Pay or other forms of Compensation; andSelection for Training including Apprenticeship.
The vendor agrees to post in conspicuous places, available to employees and applicants foremployment, notices stating that the vendor complies with all applicable federal and state non-discrimination laws. The vendor shall, in all solicitations or advertisements for employees placed by or onbehalf of the vendor, state that all qualified applicants shall receive consideration for employmentwithout regard to race, religion, color, sex, national origin, sexual orientation, Vietnam-era veteranstatus, handicap, age, or disability. The vendor shall incorporate the foregoing requirements of thisparagraph in all of its contracts for any of the work prescribed herein (other than subcontracts forstandard commercial supplies or raw materials), and shall require all of its subcontractors for any part ofsuch work to incorporate such requirements in all subcontracts for such work.
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3.13 Compliance With The Law
The vendor agrees to comply with all applicable federal, state, and local laws in the conduct of the workhereunder. The vendor accepts full responsibility for payment of all taxes and insurance includingworkers’ compensation insurance premiums, unemployment compensation insurance premiums, allincome tax deductions, social security deductions, and any and all other taxes or payroll deductionsrequired for all employees engaged by the vendor in the performance of the work authorized by thiscontract. BWC does not agree to pay any taxes.
3.14 Assignment
Neither the contract nor any rights, duties, or obligations described therein shall be assigned by eitherparty hereto without the prior, express, written consent of the other party.
3.15 Cancellation of Contract
Either party may cancel the contract upon written notice delivered to the other party thirty (30) days priorto the effective time of termination.
3.16 Drug-Free Workplace
The vendor agrees to comply with all applicable state and federal laws regarding a drug-free workplace.The vendor shall make a good faith effort to ensure that all of the vendor’s employees, if working onstate property, will not purchase, use or possess illegal drugs or alcohol or abuse prescription drugs inany way.
3.17 Ohio Elections LawThe vendor affirms that, as applicable to the vendor, no party listed in Division (I) or (J) of Section3517.13 of the Ohio Revised Code or spouse of such party has made, as an individual, within the twoprevious calendar years, one or more contributions totaling in excess of $1,000.00 to the Governor ofOhio or to his campaign committees.
3.18 ConfidentialityThe vendor acknowledges the proprietary and confidential nature of BWC data. The selected vendorshall be required to protect the confidentiality of all BWC data and source code; and shall not repro-duce, disclose or make use of any BWC data or source code without the express permission of BWC.The vendor and its employees shall also be required to honor copyright requirements for software prod-ucts licensed to BWC.
3.19 Public Records
All materials submitted to and accepted by BWC in response to this RFP shall become the property ofBWC and will be retained by BWC in accordance with Ohio law, including the provisions of the PublicRecords Act, the Ohio Records Retention Act and state purchasing provisions. BWC shall have solediscretion in determining whether any part of vendors’ proposals contain information which is exceptedfrom Ohio Public Records law.
3.20 UNRESOLVED FINDING FOR RECOVERY
The vendor warrants that it is not subject to any unresolved finding for recovery issued by the Auditor ofState within the meaning of Ohio Revised Code Section 9.24; provided, however that if the vendor issubject to a finding for recovery pursuant to Section 9.24 (A) and the vendor qualifies for and has takenthe necessary steps to resolve the finding for recovery pursuant to Section 9.24 (B), the vendor mustprovide BWC with specific documentation regarding the resolution prior to the award of the contract un-der this Request for Proposals. If it is discovered after the contract has been awarded that the vendorwas subject to an unresolved finding for recovery on the date the contract was awarded, the contract willbe declared "void ab initio", and BWC will not pay for any services rendered or goods delivered underthe contract.
4.0 PROPOSAL FORMAT
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These instructions describe the required format for vendors' proposals. The proposal submitted shallfollow the same format as described below. All pages shall be sequentially numbered.
All materials submitted in response to this RFP shall become the property of BWC and may be returnedonly at BWC's option. Vendors shall submit four (4) identical copies of their proposal to the addressidentified in Section 2.6 of this RFP.
Each copy shall contain the following documents:- Cover Letter/Executive Summary- Attachment B Request for Information- Proof of License- Proof of Insurance- Affirmative Action Policy and Profile- Written Non-Discrimination Policy- References
4.1 Cover Letter/Executive Summary
The cover letter/executive summary shall be in the form of standard business letter and shall include anoriginal signature by an individual authorized to legally bind the vendor. The cover letter/executivesummary shall provide the name and telephone number of a contact person with authority to answerquestions regarding the proposal. The letter shall also include the name and telephone number of acontact to be notified regarding contractual issues. The vendor shall state that the Statement ofInvestment Policy and Guidelines (Attachment A) has been read. The vendor shall clearly indicateunderstanding of BWC objectives and the scope of services under this RFP.
The cover letter/executive summary shall state the proposer’s fee. Any expenses which may be incurredby BWC not included in this fee shall also be disclosed. BWC reserves the right to negotiate a fee thatis lower than the proposer’s stated fee.
4.2 Attachment B Request for Information
Attachment B must be completed in its entirety and submitted.
4.3 Proof of License
The proposal shall include proof that the vendor is a bank, an insurance company, an investmentmanagement company or an investment advisor as defined by the Registered Investment Advisors Actof 1940.
4.4 Proof of Insurance
The vendor shall provide proof (a copy of a current certificate) that the vendor is covered by workers’compensation insurance. The vendor shall also provide proof of employer’s liability and/or vendor’sinsurance.
4.5 References Please provide a reference list of at least three current clients with similarly-sized and structured invest-ment plans; including the name, address and telephone number of the contact person. Additionally,please provide a list of your public sector clients. The vendor recognizes that BWC reserves the right tocontact any or all of the references listed, and may consider the reference when evaluating the pro-posal.
5.0 EVALUATION OF RESPONSES
BWC will evaluate each response on the above items in phases as described below. Any deviation oromission from preceding instructions shall be grounds for rejection of the response. BWC reserves theright to reject any and all responses received in response to this Request for Proposal. BWC may waiveminor defects which are not material when no prejudice will result to the rights of other vendors, thepublic, or BWC. BWC shall not pay for information or services solicited or provided prior to entering intoa contract with a selected vendor.
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5.1 Responsive and Responsible
A vendor’s proposal shall be responsive when a vendor’s response fulfills a particular requirement of theRFP in all material respects and contains no irregularities or deviations from the requirement. A vendorshall be non-responsive when a vendor’s response fails to fulfill a particular requirement of the RFP inany material respect or contains an irregularity or deviation from the requirement.
A vendor shall be responsible when a vendor’s response demonstrates the vendor’s ability to success-fully carry out the requirements of the RFP. The factors that BWC may consider in determining whethera vendor is responsible include the experience of the vendor, its financial condition, its conduct and per-formance on previous contracts, its facilities, its management skills and depth, and its ability to executethe contract properly. The proposer evaluations and contract award are subject to the domestic prefer-ence provisions, provisions 41 U.S.C.A. 10a-10d (Buy America), and Sections 125.09 and 125.11 of theOhio Revised Code and Section 123:5-1-06 of the Ohio Administrative Code (Buy Ohio).
5.2 Evaluation Phases
This process will proceed in two phases. Phase One will entail the review and confirmation of themandatory technical, format, and content requirements of the RFP. If a vendor is non-responsive to anyof the requirements in Phase One, that vendor’s proposal shall be rejected. All responsive proposalsshall be considered during Phase Two.
Phase Two will consist of evaluating the proposals using the following methodology. First, the proposedproducts (as well as their sponsoring firms) will be ranked quantitatively using the following criteria:
PERFORMANCE:The products’ relative and risk-adjusted performance will be scored, as well as any risk measures thatmay be relevant to the given discipline.
ORGANIZATIONAL STRENGTH:This scoring will be based on the size of the firm, as well as the depth and experience of the privateequity investment team.
INVESTMENT PHILOSOPHY, STRATEGY and STYLE:The vendor must clearly articulate the investment strategies and activities that would be followed anddemonstrate that the vendor has successfully employed these strategies and activities over time.
FEES:Fees will be scored on a relative basis.
Once the scoring has been run, the candidates will be evaluated for closeness of fit with BWC’sobjectives by factors including, but not limited to the following:• Investment Process• Organizational Stability & Size• Professional Turnover• Public Fund Experience• Designation as an Ohio-qualified firm by BWC’s criteria and minority goals
The highest scoring qualified vendors in each of the investment categories will be recommended forinclusion on the Investment Fund Manager Approved List for approval by the BWC OversightCommission. From the list accepted by the BWC Oversight Commission, some Investment FundManagers may be invited to make a personal presentation to BWC staff and/or investment consultant.Several Investment Fund Managers will be offered contracts. The selections shall conform toprocedures delineated in the BWC’s Statement of Investment Policy and Guidelines. Nothing hereinshall restrict BWC or its Oversight Commission from revising its Investment Policy and Guidelines inaccordance with the prudent exercise of its fiduciary duty to the beneficiaries of the funds soadministered.
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The Ohio Bureau ofWorkers’ Compensation
Statement of InvestmentPolicy and Guidelines
Approved September 18, 2002
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The Ohio Bureau of Workers’ Compensation
Statement of Investment Policy and Guidelines
I. INTRODUCTION
Purpose
This document establishes the investment policy (the “Investment Policy”) for the Ohio Bureau ofWorkers’ Compensation (“OBWC”) State Insurance Fund ( the ‘Fund”) . Its purpose is to assist theOversight Commission, the Administrator, the Chief Financial Officer, the Chief Investment Offi-cer and the OBWC staff in effectively supervising, monitoring and evaluating the investment of thesurplus and reserves of the Fund.
From and after March 7, 1997, all investment activities undertaken by, or on behalf of, the OBWC,including any investment activities performed by outside professional fund managers and brokers,will strictly adhere to the terms of this Investment Policy, the restrictions of the Ohio Revised CodeSection 4123.44, as amended Am. Sub. S.B. No. 82, and any other applicable statutory or regulatoryprovisions. A copy of the Ohio Revised Code Section 4123.44, as amended, is attached to this In-vestment Policy and all aspects of this Investment Policy shall be construed and interpreted in amanner consistent with Section 4123.44.
Prior to March 7, 1997, all investment activities undertaken by, or on behalf of, the OBWC, in-cluding any investment activities performed by outside professional fund managers and brokers, willstrictly adhere to the terms of this Investment Policy, the restrictions of the Ohio Revised CodeSection 4123.44, as in effect prior to the effective date of Am. Sub. S.B. No. 82, and any other ap-plicable statutory or regulatory provisions.
Objectives
The objectives of this Investment Policy have been established in conjunction with a comprehen-sive review of the current and projected financial requirements of the OBWC. These Objectives are:
• To safeguard the assets of the Fund. • To maximize returns within acceptable risk parameters • To maintain the purchasing power of the current assets and all future contributions by producing
positive real rates of return on Fund assets. • To preserve the ability of OBWC to pay all disability benefits and expense obligations when due. • To achieve a total annualized average rate of return during each rolling five year period which
equals or exceeds the average discount rate used by the OBWC’s actuarial consultant to computereserves for compensation for each such rolling five year period.
• To achieve an aggregate rate of return during each rolling five year period that exceeds generally
accepted and broadly recognized conventional indicators of the overall rate of inflation, e.g., theGDP deflator, for such period.
• To minimize the costs of administering the Fund and managing the investments.
All aspects of this Investment Policy should be interpreted in a manner consistent with the Fund’sobjectives and Section 4123.44 of the Ohio Revised Code. The Oversight Commission shall adopt inregular or special meetings, policies, objectives or criteria for the operation of the investment pro-gram at least annually. The Oversight Commission shall review, prospectively, any investment ac-
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tivity proposed to be undertaken pursuant to this Investment Policy and shall prohibit any such in-vestment activity that the Oversight Commission finds to be contrary to this Investment Policy.
II. DEFINITION OF RESPONSIBILITIES
A. Oversight Commission
The Oversight Commission shall:
• Establish the strategic investment policy for the Fund and periodically review such policy inlight of any changes in actuarial variables, market conditions, or other evolving facts or situa-tions relevant to the appropriate character of that policy.
• Monitor and review the investment performance of the Fund to determine achievement of goals
and compliance with this Investment Policy. • Approve the selection of all Investment Consultants. • Approve, based upon the criteria and procedures established pursuant to this Investment Policy,
the list of qualified fund managers selected by, and the list of qualified outside brokers preparedby the Administrator and Chief Investment Officer. The list of qualified brokers includes Ohioand minority brokers only, and not non-Ohio based brokers .The list of qualified brokers shall bereviewed and updated by the Administrator and Chief Investment Officer at least annually. Thelist of fund managers selected by the Administrator and Chief Investment Officer and approvedby the Oversight Commission are referred to herein as the Approved Fund Managers and a fundmanager included on the list shall be referred to herein as an Approved Manager. The list ofoutside brokers prepared by the Administrator and Chief Investment Officer shall be referred t oherein as the Approved Brokers and a broker included on the list shall be referred to herein as anApproved Broker.
• Approve the scope of investment activities that may be undertaken by each Approved Fund
Manager. The investment activities undertaken by an Approved Fund Manager may not varyfrom the scope of activities previously approved by the Oversight Commission without theprior approval of the Oversight Commission.
• Approve the criteria and procedures developed by the Administrator and Chief Investment Offi-
cer, with the assistance of the Investment Consultants, to select the Approved Fund Managersand Approved Brokers. The criteria and procedures developed by the Administrator and ChiefInvestment Officer, and approved by the Oversight Commission, shall be incorporated into, andshall be treated for all purposes as part of, this Investment Policy.
• Prohibit on a prospective basis any investment activity that the Oversight Commission finds t o
be contrary to this Investment Policy. In the event that the Oversight Commission determinesthat any activity undertaken or proposed to be undertaken pursuant to this Investment Policy iscontrary to this Investment Policy, the Administrator shall take any corrective action that theOversight Commission determines, after consultation with the Administrator, is necessary t oprohibit such activity.
B. OBWC Staff Responsibilities
The Chief Investment Officer shall be employed by the Administrator, after consultation with theOversight Commission, and shall be a senior member of the OBWC staff with the primary responsi-bility to implement and supervise this Investment Policy. Subject to the supervision and control ofthe Administrator, the Chief Investment Officer shall:
• Supervise the management of all the Fund assets in accordance with this Investment Policy andthe objectives and guidelines set forth herein.
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• Develop the criteria and procedures to be utilized to select the Approved Fund Managers and the
Approved Brokers. • Select, subject to the approval of the Oversight Commission described above, qualified invest-
ment consultants. Select from the list of Approved Fund Managers investment fund managers t oprovide advice with respect to, and manage, the investment of the Fund’s assets.
• Monitor all managed assets to insure compliance with the guidelines set forth in this Investment
Policy. • Promptly vote all proxies and related actions in a manner consistent with the long term inter-
ests and objectives of the Fund set forth herein. Maintain detailed records of said voting ofproxies and related actions and comply with all regulatory obligations related thereto.
• Report to the Oversight Commission on at least a quarterly basis regarding the status of the
portfolio and it’s performance for various time periods. • Consult with the Approved Fund Managers on at least a quarterly basis to discuss account pro-
gress and other material information. • Subject to any exceptions expressly set forth herein, cause the execution of all trades dictated by
the Approved Fund Managers through the services of outside brokers selected by the Administra-tor and the Chief Investment Officer from the list of Approved Brokers.
• Provide the Oversight Commission with a report on at least a quarterly basis on the trading ac-
tivities of the Fund, including the volume of trades, and related commissions, executed by eachApproved Broker.
C. Investments Managers’ Responsibilities
The investment of all Fund assets, shall be managed by Approved Fund Managers; provided however,short-term cash management investments may be made by OBWC staff members selected by theAdministrator.
Each professional fund manager shall:
• Manage the plan assets under its care, custody and/or control in accordance with the InvestmentPolicy objectives and guidelines set forth herein and in compliance with applicable Ohio statu-tory requirements.
• Exercise full investment discretion over the assets in their care within the guidelines set forth
herein; provided however, subject to any exceptions expressly set forth herein, all trades shall beexecuted under the supervision and control of the Administrator and Chief Investment Officerby brokers selected by the Administrator and Chief Investment Officer from the list of Ap-proved Brokers.
• Utilize financial derivatives only to offset the risk of securities held in the portfolio whendeemed appropriate.
• Promptly inform the Administrator, Chief Investment Officer and Investment Consultant in
writing of all changes of a material nature pertaining to the firm’s organization and professionalstaff.
• If directed by the Administrator and Chief Investment Officer, shall promptly vote all proxies
and related actions in a manner consistent with the long term interests and objectives of the
16
Fund. Each manager designated to vote shall keep detailed records of said voting of proxies andrelated action and will comply with all regulatory obligations related thereto.
• Report to the Administrator and Chief Investment Officer on at least a quarterly basis on the
status of the portfolio and its performance for various time periods and meet with the staff atleast semi-annually to report on the economic outlook and compliance with goals and objec-tives.
• Shall acknowledge and agree in writing to their fiduciary responsibility to fully comply with the
entire Investment Policy.
D. Investment Consultants’ Responsibilities
The Investment Consultant shall:
• Provide independent and unbiased information to the Oversight Commission and the OBWCstaff.
• Assist in the development and amendment of this Investment Policy. • Assist in the development of strategic asset allocation targets. • Assist in the development of performance measurement standards. • Monitor and evaluate fund manager performance on an ongoing basis. • Conduct due diligence when a manager fails to meet standards. • Establish a procedural due diligence search process. • Assist in the development of criteria and procedures to be utilized for the selection of all fund
managers. • Provide any other advice or services that the Oversight Commission or the Administrator and
Chief Investment Officer determine from time to time is necessary, useful or appropriate to ful-fill the objectives of this Investment Policy.
In selecting qualified consultants, consideration shall be given to consultants that are based in Ohioor having significant operations in the State of Ohio. In addition, consideration shall be given to theengagement of qualified minority-owned firms.
E. Brokerage Services
Subject to any exceptions expressly set forth herein, all trades shall be executed under the supervi-sion and control of the Administrator and Chief Investment Officer by brokers selected by the Ad-ministrator and Chief Investment Officer from the list of Approved Brokers.
III. INVESTMENT POLICY GUIDELINES
A. Asset Allocation Guidelines
It is the Oversight Commission’s responsibility to determine the allocation of assets among distinctcapital markets in accordance with allowable legal limits. The procedure for determining the alloca-tion will consider the relevant characteristics of the liabilities and potential assets of the Fund.
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The liability considerations shall include, but not be limited to, current and expected future values ofthe benefits, premiums and total assets. These factors are important for identifying the investmenthorizon of the Fund and its cash flow requirements.
Based on an asset and liability study dated, March 1, 2000, which analyzed the expected returns ofvarious asset classes, projected liabilities and the risks associated with alternative asset mix strate-gies, the Oversight Commission has established the following asset allocation:
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Asset Class Target Range
Equity Securities
Large Capitalization Domestic Equities 22%Small/Mid Capitalization Equities 5%International Equity Securities 11%Private Equity Securities 3%
Total Equity Securities 41% {30-50%}
Fixed Income Securities
Domestic Fixed Income Securities 59%
Total Fixed Income Securities 59% {45-65%}
Cash Equivalents 0% {0-5% }
Total 100%
The asset allocation represents a long term strategy. Short term market shifts may cause the assetmix to drift from the allocation targets. Should the target percentage fall out of the indicated rangefor a particular asset class, the Administrator and Chief Investment Officer will cause the ApprovedFund Managers to make any adjustments in the Fund’s investment portfolio necessary to satisfy theasset allocation guidelines established by this Investment Policy.
B. Securities Guidelines
Each Approved Fund Manager must adhere to the following guidelines as well as any currently appli-cable Ohio statutory requirements as the same may be amended from time to time.
Domestic Equity Securities
It has been determined that diversification of the equity asset base into large capitalization compa-nies (over $8 billion in market capitalization) and small to mid-size companies (under $8 billion)will offer the opportunity for enhanced returns, while lessening overall risk due to the broader diver-sification benefits of additional asset classes.
Large Capitalization Equity Securities
• All equity securities held by the Fund shall meet the requirements of Ohio Revised Code Section4123.44.
• The principal focus of the Fund’s investment activities in equity securities will be companies
with market capitalizations in excess of $8 billion. • No single holding shall account for more than 5% of the entire portfolio at market, or 9.9% of
the outstanding equity securities of any one corporation. • Trading directions shall be submitted by the Approved Fund Managers to the Administrator and
Chief Investment Officer who shall supervise and control the execution of all trades by Ap-proved Brokers.
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• An Approved Fund Manager shall have the discretion to invest a portion of the assets in cashreserves when it deems appropriate. However, each Approved Fund Manager will be evaluated onthe overall return earned on the aggregate amount of all funds under its direct management.
Small/Mid Capitalization Equity Securities
The guidelines applicable to the Approved Managers investing in large capitalization equity securitiesshall also apply to Approved Managers investing in small/mid capitalization securities except that:
• The investment activity in this category will be limited to companies with market capitaliza-tions in the range of $100 million to $8 billion.
• Trading directions shall be submitted by the Approved Fund Managers to the Administrator and
Chief Investment Officer who shall supervise and control the execution of all trades by Ap-proved Brokers, provided however, if necessary to accomplish cost effective trading, the Ad-ministrator shall have the discretion to permit an Approved Fund Manager to cause the execu-tion of the purchase or sale of small and middle capitalization equity securities recommended bythat Approved Fund Manager provided that such a purchase or sale is executed by an ApprovedBroker that is not affiliated with such Approved Fund Manager.
International Equity Securities
The Fund may allocate a portion of its investment portfolio to international equity securities subject t oall applicable legal requirements and the limits set forth in this Investment Policy. The purpose of in-vesting in international equity securities is to enhance the overall investment returns of the Fund whilereducing risk through increased diversification. All of the guidelines applicable to the investments inlarge capitalization equity securities shall apply to investments in international equities except that:
• Equity holdings of the equity securities of any one international company shall not exceed 10%of the total value of all the investments in international equity securities.
• Equity holdings of international equity securities of any one industry category shall not exceed
25% of the total value of all investments in international equity securities.
• Country by country allocations shall be based upon the allocations made by a peer group of in-ternational equity managers that employ a broadly diversified investment strategy; providedhowever, no more than 40% of the total value of all investments in international equity securi-ties shall be invested in any one country.
• An Approved Fund Manager may enter into foreign currency exchange contracts for the sole
purpose of hedging the exposure to foreign currency risk inherent in the investment portfoliomaintained for the Fund by such Approved Fund Manager. Direct or indirect speculation in for-eign currency, and any investment activity related to speculation in foreign currency, shall beprohibited.
• Trading directions shall be submitted by the Approved Fund Managers to the Administrator and
Chief Investment Officer who shall supervise and control the execution of all trades by Ap-proved Brokers, provided however, if necessary to accomplish cost effective trading, the Ad-ministrator shall have the discretion to permit an Approved Fund Manager to cause the execu-tion of the purchase or sale of international equity securities recommended by that ApprovedFund Manager provided that such purchase or sale is executed by a broker that is not affiliatedwith such Approved Fund Manager.
Private Equity Securities
The Fund may allocate a portion of its investment portfolio to private equity securities or funds subjectto all applicable legal requirements and limits set forth in this Investment Policy. The purpose of in-vesting in private equity securities or funds is to enhance the overall investment returns of the Fund
20
while reducing risk through increased diversification. In selecting qualified private equity managers, con-sideration shall be given to managers that are based in Ohio or have significant operations in the Stateof Ohio, and have invested significant amounts of money in Ohio companies.
The following guidelines shall apply to this asset class:
• All private equity securities or funds held by the Fund shall meet the requirements of Ohio RevisedCode Section 4123.44.
• The principal focus of the Fund's investment activities in private equities will be accomplished byinvesting in limited partnerships and funds.
• An Approved Fund Manager will have full discretion to invest the Funds' private equity commit-ments.
• Trading directions shall be submitted by the Approved Fund Managers to the Administrator andChief Investment Officer who shall supervise and control the execution of all trades by ApprovedBrokers, provided however, if necessary to accomplish cost effective trading, the Administratorshall have the discretion to permit an Approved Fund Manager to cause the execution of the pur-chase or sale of international equity securities recommended by that Approved Fund Manager pro-vided that such purchase or sale is executed by a broker that is not affiliated with such ApprovedFund Manager.
Domestic Fixed Income Investments
The domestic fixed income investment component of the Fund shall be diversified as to investmentmanagement style and asset types, in order to minimize risk through added diversification and providethe opportunity for enhanced returns.
The following guidelines shall apply to this asset class:
• All fixed income securities held by the Fund shall meet the requirements of Ohio Revised CodeSection 4123.44.
• Each fixed income portfolio shall be invested with duration characteristics that are within a
range from a maximum duration of the OBWC Custom Benchmark * to a minimum durationequal to the Lehman Bros. Government and Corporate Intermediate Index.
• The average credit quality shall not be lower than single A rating.
• No portfolio shall have more than 5% of its assets (by market value) invested in securities guar-
anteed by a single non-government creditor.
• The fixed income securities investment component of the Fund shall be diversified to minimizethe risk of losses.
• Trading directions for all fixed income securities shall be submitted by the Approved Fund Man-
agers to the Administrator and Chief Investment Officer who shall supervise and control theexecution of all trades by Approved Brokers, provided however, if necessary to accomplish costeffective trading, the Administrator shall have discretion to permit an Approved Fund Managerto cause the execution of the purchase or sale of fixed income securities recommended by thatApproved Fund Manager provided that such purchase or sale is executed by an Approved Brokerthat is not affiliated with such Approved Fund Manager.
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Real Estate
Investments may be in securities or real property, although such investments are not presently antici-pated.
Cash Equivalents
The maximum maturity shall not exceed 360 days.
IV. MANAGER SELECTION PROCEDURE
The Administrator and the Chief Investment Officer, with the assistance of the Investment Consult-ants, will select from the list of Approved Fund Managers the appropriate money managers to manageall Fund assets. The nature of the investment activities in which each such fund manager will engagemust be approved by the Oversight Commission. Approved Fund Managers must meet the followingminimum criteria:
• A manager must be a bank, insurance company, investment management company, or invest-ment advisor as defined by the Investment Advisors Act of 1940.
• A manager must demonstrate that it has achieved historical quarterly performance numbers cal-
culated on a time-weighted basis, based on a composite of all fully discretionary accounts ofsimilar investment style, and reported net and gross fees that are at least comparable to otherinvestment managers with similar investment strategies and objectives.
• A manager must provide performance evaluation reports prepared by an objective third party
that illustrate the risk/return profile of the manager relative to other managers with similar in-vestment strategies and objectives.
• A manager must provide detailed information on the history of the firm, key personnel, key cli-
ents, fee schedule, and support personnel.
• A manager must clearly articulate the investment strategies and activities that would be followedand demonstrate that the manager has successfully employed these strategies and activities overtime. If selected, a manager must submit to the Administrator and Chief Investment Officer acomplete description of any changes the manager proposes to make with respect to its invest-ment strategies and activities. These proposed changes must be submitted to the OversightCommission for its approval and finding that the proposed investment activity is not contraryto this Investment Policy prior to implementation on behalf of OBWC.
• A manager shall not have any outstanding legal judgments or past judgments which may, in the
opinion of the Administrator, Chief Investment Officer and the Oversight Commission, reflectnegatively upon the manager.
• Specific consideration shall be given to investment management firms based in Ohio or having
significant investment operations in the State of Ohio.
• As a goal, but not as a minimum standard, fund managers managing at least 50% of the totalOBWC funds under management should satisfy at least one of the following characteristics:
Have its Corporate Headquarters located in Ohio: Have at least three separate significant operating locations in Ohio; Employ at least five individuals in Ohio; or
22
Have other contracts to, or operations within, this State, including the presence of agents and otherrepresentatives, that the Oversight Commission and the Administrator determine are significant.
• As a goal, but not as a minimum standard, at least 10% of all OBWC funds under management
should be managed by minority-owned firms.
• A manager must satisfy all other criteria developed by the Administrator and the Chief Invest-ment Officer and approved by the Oversight Commission.
The Oversight Commission believes that the long-term performance of the investment activities of theOBWC would be enhanced by the participation of fund managers that have demonstrated the ability t osuccessfully manage smaller investment portfolios. Therefore, as a goal, but not as a minimum standard,the OBWC should create an Emerging Manager Portfolio in the amount of $500,000,000. The purposeof this fund is to provide opportunities to small firms that have a successful historic record of fund man-agement, but do not have the size or the resources to manage a large portfolio. Fund managers that oth-erwise satisfy the criteria for selection outlined above, but in the ordinary course of business do notmanage large portfolios shall be selected to manage these funds in accordance with this Investment Pol-icy. It is expected that no one fund manager would be allocated less than $5,000,000 or more than$50,000,000 of the Emerging Manager Portfolio. The Emerging Manager Portfolio shall be subject t oall of the provisions of this Investment Policy and shall be taken into account in applying the AssetAllocation Guidelines set forth in Section III above.
V. SELECTION OF BROKERS
• All Approved Brokers must be properly licensed and should be selected based upon their demon-strated professional and administrative ability; however, one of the goals of this InvestmentPolicy is to control and minimize the aggregate cost and expense of executing trades.
• All Approved Brokers must provide detailed information on the history of the firm, key per-
sonnel, key clients, fee schedule, and support personnel.
• An Approved Broker shall have no outstanding legal judgments or past judgments which may, inthe opinion of the Administrator, Chief Investment Officer and the Oversight Commission, re-flect negatively upon the Approved Broker.
• As a goal, but not as a minimum standard, at least 60% of all fixed income transactions and 70%
of all domestic equity transactions, measured by the dollar volume of commissions paid, exceptthose transactions executed by OBWC's international equity and private equity managers shouldbe executed by Approved Brokers that satisfy at least one of the following characteristics:
Have its Corporate Headquarters located in Ohio: Have at least three separate significant operating locations in Ohio; Employ at least five individuals in Ohio; or
Have other contracts to, or operations within, this State, including the presence of agents and otherrepresentatives, that the Oversight Commission and the Administrator determine are significant.
• As a goal, but not as a minimum standard, at least 60% of all fixed income transactions and 70%
of all domestic equity transactions, measured by the dollar volume of commissions paid, exceptthose transactions executed by OBWC's international equity and private equity managers shouldbe executed by individual agents that are Ohio residents or are otherwise subject to Ohio incometaxation.
• As a goal, but not as a minimum standard, at least 10% of all transactions, measured by the dol-
lar volume of commissions paid, should be executed by minority-owned firms.
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• Each Approved Broker must satisfy any other criteria developed by the Administrator and the
Chief Investment Officer and approved by the Oversight Commission. VI. PERFORMANCE OBJECTIVES
The performance objectives of the total Fund investment assets are to:
• Achieve a total annualized average rate of return during each rolling five year period whichequals or exceeds the average discount rate used by OBWC’s actuarial consultant to compute re-serves for compensation for each such rolling five year period.
• Achieve an aggregate rate of return during each rolling five year period that exceeds generally
accepted and broadly recognized conventional indicators of the overall rate of inflation, e.g., theGDP deflator, for such period.
Quarterly performance will be evaluated to test progress toward the attainment of longer term targets.It is understood that there are likely to be short term periods during which performance deviates frommarket indices and longer term absolute and relative targets. During such times, greater emphasis shall beplaced on peer performance comparisons with managers employing similar styles.
On a timely basis, but not less that four times a year, the Administrator and Chief Investment Officerwill meet with the Investment Consultants to:
• Evaluate the performance of each Approved Fund Manager.
• Review each Approved Fund Managers’ adherence to this Investment Policy.
• Analyze any material changes in the Approved Fund Manager’s organization, investment strate-gies or personnel.
• Review each Approved Fund Manager’s performance relative to appropriate indices and peer
groups.
VII. INVESTMENT MONITORING
Each Approved Fund Manager’s performance shall be evaluated relative to an appropriate marketindex and a relative peer group of managers as indicated below. They are expected to (1) rank abovemedian versus their respective peer groups over each rolling three-year and five-year periods and (2)earn investment returns that equal or exceed their respective market index over each rolling three-year and five-year periods.
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Benchmark Comparisons
Consultant ComparativeInvestment Manager Index Peer Group
Large Cap Equity S&P 500 Growth StyleValue Style
Small/Mid-Cap Blend Small/Mid-Capitalization GrowthEquity {S& P 400 Mid-Cap &
S&P 600 Small Cap}Small/Mid-Capitalization Value
International Equity EAFE International Equity Managers
Lehman BrothersDomestic Fixed Aggregate Bond In-
dexVarying by investment style
Income
Private Equity S&P 500 plus 5% Private Equity Managers
Real Estate NCREIF Real Estate Managers
Cash Equivalents 90 day T. Bills STIF
The performance of each Approved Fund Manager will be monitored on an ongoing basis and theAdministrator and the Chief Investment Office shall take any appropriate corrective action, in-cluding, subject to prior Oversight Commission approval, the replacement of an Approved FundManager. Performance factors which may lead to terminating a manager relationship include:
• Performance below median (50th percentile) of their peer group over rolling three year periods. • Performance below the median (50th percentile) of their peer group over a five year period. • Realization of negative incremental value added to portfolio returns for three and/or five year
periods. • Major organizational changes that could warrant a review of the Approved Fund Manager’s rela-
tionship with OBWC, including:
- Change in professionals- Significant account losses- Significant growth of new business- Change in ownership
VIII. COMMUNICATIONS
• Each Approved Fund Manager will provide written reports at least quarterly, including asset in-ventories, market commentary or anything else deemed significant at the time of reporting.
• Each Approved Fund Manager is expected to meet with the Administrator and the Chief In-
vestment Officer at least annually at OBWC offices. • Frequent and regular communication with the OBWC by all Approved Fund Managers is encour-
aged.
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IX. REVIEW PROCEDURES
The Oversight Commission in conjunction with the Administrator, Chief Investment Officerand Investment Consultants will review this policy statement at least once a year, to deter-mine if revisions are warranted.
It is not expected that this Investment Policy will change frequently; in particular short termchanges in the financial markets should generally not require an adjustment in this Invest-ment Policy.
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ATTACHMENT B
THE OHIO BUREAU OF WORKERS’ COMPENSATION
PRIVATE EQUITY FUNDQUESTIONNAIRE
The private equity fund questionnaire will be a primary source of information for The Ohio Bureau ofWorkers’ Compensation to evaluate private equity limited partnerships as a private equity investment.For this reason, it is important that the information provided be complete and in the format requested.Please keep your response to each question to one or two pages. Many questions can be answered with abrief response.
ORGANIZATION:
1. Contact and Company Information:
Name of Firm:_________________________________________________________________________________Main Address:_________________________________________________________________________________
City: ______________________________ State:_____ Zip Code: ____________________
Phone: ______________________________ Fax: ______________________________
Federal Employer Identification Number: _______________________
Contact Person(s):Name: ______________________________ Fax: ______________________________Title: ______________________________ Phone: ______________________________
Please list all other branch offices, domestic and international:_________________________________________________________________________________
Is the firm a registered investment advisor under the Investment Company Act of 1940? If yes,please attach a copy of your most recent SEC Form ADV.
2. Please list any additional security or investment industry licenses or designations of the firm's pro-fessionals.
3. Is the firm currently involved in any litigation or SEC investigation? Please comment.
4. Have you ever been sued or have you ever sued another party? Please comment.
5. Has the firm or a principal ever been convicted of a felony? Agreed to sanction or penalty? Pleasecomment.
6. Have there been any changes in the ownership structure of the firm in the last 5 years? If yes,when? _____ Please describe the nature of the change.
7. Is the management entity for the Fund covered by errors and omissions insurance? If yes, howmuch $________.
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8. Please provide a brief historical summary of the organization’s involvement in private equity in-vestments within the last five years.
9. What safeguards for the investors is the general partner providing in the event there is turnover ofkey people in the joint venture management organization (e.g. limited partner advisory board, keyperson provisions, and/or no-fault divorce provisions)?
10. What is the ownership structure of the firm? Percentage of firm owned by minorities or women?
11. Where is the firm headquartered? What percent of prior funds were invested in Ohio? Midwest? Arethere any employees located in Ohio?
PERSONNEL
12. Key Personnel - Please provide a list of the individuals who will be involved in the Fund and a de-tailed description of their roles and responsibilities in the investment and management process,highlighting those individuals who will be charged with the hands-on merchant banking and opera-tional tasks.
Years Years YearPvt. Inv. Inv. Joined
Name Title Exper. Exper. Firma) __________________________ ________________________ ______ _____
______
Investment Role and Qualifications:
Name b) __________________________ ________________________ ______ ______
______
Investment Role and Qualifications:
c) Etc.
13. Are you planning to hire any additional personnel, professional or support, in connection with themanagement of the fund?
14. Please attach a description of the management company’s compensation system regarding the Fundand explain how the system works to incent employees and keep them with the firm.
15. Have any professionals left the firm in the last 5 years?
INVESTMENT STRATEGY
16. What type of private equity investing does the firm do (early stage, mezzanine, buyout, etc.)?What percentage of your last fund (s) was invested in each type?
17. Briefly describe your investment philosophy regarding, and approach to, private investing.
18. Please describe your diversification considerations in building a portfolio of private investments,including the largest exposure (% of Fund) which will be exposed to any one company investment.
19. What size of a position (% of total capitalization) do you typically purchase in companies?
20. Do you plan to be the sole investor in companies or co-invest with other private equity funds?
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21. If planning to co-invest in companies, what percentage of the transactions can investors expect thepartnership to be the lead investor versus part of a syndicate?
DEAL FLOW
22. Describe the GPs sources of deal flow for companies qualifying under the Fund’s investment man-date.
23. Please attach a copy of the General Partner’s deal flow log for all private equity investments re-ceived in the previous 12 months, ended 6/30/03. Please mark which of the companies would qual-ify as candidates for the fund with an “X.”
24. If the GP has already made a number of investments on the Fund’s behalf, please describe eachtransaction and its origin.
DUE DILIGENCE
25. Please describe in detail the due diligence process you employ in investigating potential private in-vestments. As applicable, please describe actual examples of the GPs discovery process in companyevaluations.
26. How is the due diligence process documented?
27. With foreign transactions, will the General Partner personally conduct due diligence to the samelevel of thoroughness as on domestic investments? How will this be handled?
28. What portions of the due diligence process do you outsource or subcontract, (e.g. legal, audit)?Please describe.
PARTNERSHIP INVESTMENT DECISION PROCESS
29. Please provide a detailed description of how investment decisions will be made for the partnership,including who will be the key decision makers, when and how will an investment be declined.
30. Describe the internal decision making dynamics of the organization.
31. Are foreign investments considered? What percentage of the fund might they represent?
29
FINANCING
32. Please describe the process the GP uses in raising third party financing (such as senior and subordi-nated debt, or additional equity).
33. What will be the GP’s approach to company capitalization for the Fund’s investments.
34. Please provide a list of financing source (primarily lenders) references.
NEGOTIATION
35. Please describe the partnership’s key considerations and deal points in negotiating the pricing,terms, conditions, representations and warranties of an investment.
36. Do you conduct investment negotiations in-house? To what degree do you use outside counsel in thenegotiation process?
37. What are the qualifications of the person(s) responsible for investment negotiations and who is re-sponsible?
38. How many times in the last three years has the firm discontinued interest due to negotiation ofterms and/or pricing?
39. Please provide specific examples of provisions you have incorporated in your contracts to protectyour investment.
40. Provide any other information you feel is important regarding your approach to negotiation whicha potential client should be aware.
DOCUMENTATION AND CLOSING
41. Please describe the process used in the documentation and closing of investments.
42. What portions of the documentation and closing process do you outsource or subcontract, (e.g. le-gal, audit)? Please describe. Who pays these costs?
MONITORING, REPORTING, AND ADDING VALUE
43. What does the firm do to add value to the investments after they are made? Please provide an ex-ample of how your active participation enhances investor value once an investment is made.
44. How frequently are you in contact with the company managements in which you are invested?
45. What is your policy regarding sitting on the board of directors?
46. Describe the methods employed to determine company valuations in reporting to your investors.
47. Have you ever managed an investment in crisis? Please give a brief description.
48. What methods do you employ to detect early problems in companies and investments?
49. Describe your typical reporting duties and responsibilities with your investors.
50. Please attach a sample of the quarter-end and year-end partnership report you prepare for your in-vestors.
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EXITING/LIQUIDITY
51. How does the General Partner plan for liquidity in private investments?
52. How many investments has the GP managed through to complete liquidity?
53. How many public offering exits of private investments has the GP accomplished?
54. Please describe the GPs policy and outlook on public offering versus trade/sale exits.
55. Does the partnership plan to make in-kind distributions or cash only. If in-kind distributions areexpected, under what circumstances will they be used.
CONFLICTS OF INTEREST
56. What is your policy for allocating commitments among the partnership, other funds, principals andaccounts? Please address how the firm allocates capital and handles any conflicts of interest.
57. Please detail any existing or potential conflicts between your public and private investment activi-ties and investments made on behalf of the principals or their families.
58. Please describe the degree to which investors may expect the GP to charge investment banking,management, director, or other fees to the portfolio companies or the partnership, and what thesemay amount to annually and over the life of the fund. Will any of the fees charged to portfoliocompanies be used to offset the management fee as is customary in private equity partnerships?
ADDITIONAL REFERENCES AND INFORMATION
59. List the public fund investors who have participated in funds in the last 5 years, with fund name,amount contributed, phone numbers, and any other relevant information.
60. A separate list of all private equity (including equity-related or private debt) investments made inthe past 5 years, including: company name, shares/par value, type security, cost basis, and sale pro-ceeds or market value.
61. Please complete schedule A for each fund formed.
62. Is your firm in the process of raising a fund currently? If so, how large is it scheduled to be and whenare the closing dates?
63. If your firm is not currently raising a fund, when do you anticipate raising your next fund? How largewill it be?
64. If your firm is a fund of funds manager list the private equity partnerships you have included inprior funds. Explain how you expect to have access to similar quality or the same partnerships goingforward.
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REPRESENTATIONS AND WARRANTIES
65. To the best of our knowledge all information and representations provided are true and accurate.
AuthorizedSignature: ____________________________________________________________________
Print Name: ____________________________________________________________________
Title: ____________________________________________________________________
Firm: ____________________________________________________________________
Phone: _______________________________________ Date: ______________________________
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Fund #
Year Formed
Size of Fund
Portfolio Returns(before fees &
carry)
NET IRRTo Investors
Year FundFully Invested
Year FundFully Distributed
VentureEconomics
VintageYear Ranking
Multiple Earned($ earned/ $
raised)
Schedule APerformance Summary
