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First full details of huge $8bn fixed-income RFP

NORWAY - The NOK547bn (e68bn) Norwegian Government Petroleum Fund has issued one of the world’s largest ever fixed-income RFPs seeking 14 mandates for between $5-8bn of assets, with the initial tender process being run through the IPE-Quest electronic manager selection system.

Niclas Hiller, head of external fixed income products within the fixed income department at Norges Bank Investment Management (NBIM), which runs the assets on behalf of the Petroleum fund says the size of the fixed income tender is in line with the strategic benchmark of the huge fund, which sits at 40% global equities and 60% global bonds.

“Fixed income was 100% internally managed by us to begin with then we added a couple of global mandates and now we announce these new mandates in order to get access to other external mangers with specialized skills and thus create a more even balance between managers and internal and external management.
“This is a huge announcement - it is fourteen different mandates, five in index, five in enhanced and four in active.
“We would like to find and fund as many interesting managers as possible.
“However, I know in reality that some of these categories will probably be short.”

Hiller says there could be a trade off between pure or enhanced managers and that the fund might decide to give another enhanced risk mandate as opposed to a passive mandate.
“This is a very fluid and flexible process. In our RFP we are not telling managers explicitly what we would like. It is up to the manager to tell us what they are good at and their niches. We will work around that and see what there is room for.”

The provisional RFP breakdown is as follows:

* Indexed core debt global and regional up to $4.5bn - seeking five different mandates including one US mortgage.

* Enhanced indexed core debt global and regional up to $2.5bn - seeking five different mandates - including one US mortgage.

* Active core debt global and regional up to $1.2bn - seeking four different mandates.

Hiller explains the reasons behind the selection of the briefs: “Firstly we would like to have regional specialisation. Managers will not be considered for a global mandate if they don’t pitch for one of the same in a regional category, because we are seeking specialisation here.”

Another reason for the shift, he says, is the scheduled move at the beginning of next year from a customised SWGBI Salomon World Government Bond benchmark to a customised LGA Lehman Global Aggregate benchmark.

“This means we are going from a treasury benchmark to a core benchmark including corporates and mortgages etc.
“This RFP is part of that process one could say.”

Hiller points out that the fund reserves the right to select the number of managers or cancel the whole or part of the process and also says it has not yet decided the amount of capital risk to be allocated.
“Obviously we have some thoughts about this, but it is up to the manager pitching to meet our required qualifications.”

A decision on the transition of the assets has yet to be made either, but Hiller adds: “We might implement it incrementally. We have a leeway on how to conduct this and there is no end date to it because we don’t want anyone to think we have to do this at a certain time. We can use the market movements to get the transition as smooth as possible.”

Hiller says NBIM used the IPE-Quest system to streamline a very labour intensive process:
“The benefit of having an electronic tendering process reduces the admin burden and enhances your ability to be better in your database work when you receive what can be a vast amount of data. You also try to do these things in a standardised way where people can go in have a look and save their searches and they will come in the same format.
“IPE-Quest is a great way of marketing these things to the investment community because we would like as many managers as possible to compete in this tender.”

The closing date for initial responses to the RFP is January 15, 2002.
Hiller adds: “It will be a gradual process and we will prioritise as we go along.
“However, by late spring, early summer I hope we can start funding the first managers, but this can be a lengthy process."

NBIM will look after the remaining shortlisting and selection of managers itself.

**Full information on the RFP can be found at http://nbim.ipe-quest.com

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