The layman’s guide to requests for proposals (RFPs)

Determining if an investment firm will be a good fit as a partner is among the most important tasks faced by nonprofits, and issuing RFPs—and evaluating responses—is a key part of the decision-making process.

Navigating RFPs can be challenging, as the process can be complex, unleashing a torrent of information. With a thoughtful approach, however, the process can be more time-efficient and produce rewarding results. A well-crafted RFP brings clarity to your needs, alignment among stakeholders, and opens the door to innovative solutions.

A powerful tool

Whether you are seeking a new investment advisor, an outsourced chief investment officer (OCIO), or simply fulfilling fiduciary responsibilities through a periodic review, an RFP can be a powerful tool to help your organization make informed decisions. Before we get into the RFP process itself, let's establish two fundamental points:

• Typically, RFPs are questionnaires sent by an organization to multiple asset management firms being considered as investment partners. RFPs seek information ranging from the firm's history to details on historical performance and allow nonprofits to assess investment managers on an apples-to-apples basis.
• Issuing an RFP is the cornerstone of good fiduciary practice. An RFP allows your endowment or foundation to gain insight into costs, service models and fees, and whether new investment vehicles or asset classes could better serve your portfolio. Additionally, issuing an RFP can help nonprofits uncover fresh perspectives (even if it is just to benchmark your current provider), innovative strategies, market trends and emerging opportunities.

Best practices for RFPs

Since 1998, we have partnered with nonprofits as an OCIO, gaining deep insight into the RFP process through years of experience. Over time, we have identified the key best practices that consistently lead to more effective RFP outcomes.

1. Frequency: While some nonprofits issue RFPs every three years, we recommend a five- to seven-year cycle.
2. Creating the RFP: When developing an RFP, focus on the priorities that matter most to your organization. Also, consider delegating the RFP creation and review process to a small sub-committee, which makes it easier to drive consensus, manage calendars, convene for RFP reviews, and schedule in-person presentations and interview debriefs. A core group of three to five people can be nimble yet diverse enough to drive the RFP process.
   • Key areas to seek information on include each potential partner's organizational history and mission, the structure and stability of its team, and its investment philosophy and process.
   • Other important topics in the RFP include understanding performance and attribution, the client service model, fee structure and transparency, and the firm's experience working with nonprofit organizations.
   • An effective RFP should ask for conflicts of interest to be identified—and how they are disclosed and managed to ensure transparency and fiduciary alignment. Using a scoring rubric with weighted criteria can help to consistently evaluate and compare RFP responses across firms.
   • To compare performance across investment managers and OCIOs effectively, request the following:
     • Gross and net returns
     • Benchmark comparisons
     • Risk-adjusted metrics
     • An attribution analysis
     • Global Investment Performance Standards (GIPS^®) compliant results.
     • Three referrals from nonprofit clients of comparable size and/or industry. Current clients may describe what would otherwise be intangible during the interview process—like the onboarding experience and day-to-day service.

3. Length: Mark Twain once quipped, "l didn't have time to write a short letter, so I wrote a long one instead." The same principle applies to creating RFPs. If you invest a tittle more time up-front to determine the essential information and level of detail you truly need, you can create a concise RFP and regain multiples of that time during the review process—and make it easier for reviewers to compare responses and identify the best fit.

   So, before you ask for "more, more, more," consider how much time your committee is willing to spend reviewing submissions. If it feels easier to just ask for everything, you will likely find responses include hundreds of pages of information per firm, which quickly multiplies the complexity and time required for evaluation.

4. Issuing the RFP: Nonprofits often share RFPs with 5–10 firms before narrowing the field to two or three finalists for interviews. To help determine the 5–10 firms to include on your RFP list, consider issuing a request for information (RFI) prior to the RFP. An RFI is a pre-screening tool used to broadly assess alignment with your goals, investment philosophy, and governance needs.

To help investment managers or OCIOs tailor their responses, consider sharing key documents like a recent statement that shows portfolio exposures and your Investment Policy Statement (IPS). These details can better inform asset managers about your current state and may prompt them to build customized portfolios that reflect your nonprofit's needs.

5. Response time: Endowments and foundations typically allow three to four weeks for investment managers to respond to an RFP. Once responses are received, a review committee scores them based on weighted criteria (or rating) aligned with organizational priorities. Top candidates are then invited to make final presentations, either virtually or in person.