RFP and mandate awards: how institutional investors select asset managers

In depth10 min read · 11 sources

An RFP (request for proposal, i.e. a formal invitation to submit an offer) is the tender that pension funds, insurers, foundations or professional pension schemes (Versorgungswerke) use to find an asset manager for a mandate. The process runs from the needs analysis through questionnaires, a shortlist and presentations to the contract and ongoing monitoring. Here you can read through the process step by step and the usual criteria, with a scoring matrix and a fee comparison. You will also learn what research has found out about performance chasing and the recommendations of investment consultants.

How a mandate award works

The steps differ depending on the investor and the asset class, but almost always follow the same pattern:

1. Needs analysis: what role should the mandate play in the overall portfolio? The basis is the strategic allocation, for pension plans an asset-liability analysis, plus the benchmark, return target and risk budget, for example a permitted tracking error.
2. Investment guidelines: investment universe, limits per issuer, country or rating, derivatives, currencies, ESG requirements and reporting.
3. Longlist: potential managers from manager databases, recommendations from an investment consultant and the investor's own contacts.
4. RFI (request for information): a short questionnaire that roughly filters by assets in the strategy, team, track record and fee range.
5. RFP: a detailed tender with questions on the firm, team, philosophy and process, risk management, performance, costs, ESG, operations and compliance, together with a binding fee proposal.
6. Due diligence questionnaire (DDQ) on the organisation and its controls, often based on a standard template.
7. Shortlist: a handful of candidates who remain after the answers have been evaluated.
8. Finalist presentation to the investment committee, usually by the portfolio manager in person.
9. On-site due diligence: a visit to the manager, with meetings with trading, risk management and operations (operational due diligence).
10. Contract and fees: negotiating the investment management agreement (IMA) and the fee schedule.
11. Transition: handing the portfolio over from the old to the new manager, often with a specialised transition manager.
12. Ongoing monitoring: reporting, metrics, regular meetings, a watchlist and, if necessary, termination.

In Germany, many mandates are not run as a separate account but through a special fund (Spezialfonds) that a management company (Kapitalverwaltungsgesellschaft) sets up for the investor; the selected manager then runs the portfolio within this fund. This changes little in the selection process, but it does change the contracts.

Who is involved: consultants, databases, tenders

For many investors, investment consultants organise the entire process, from the longlist to the evaluation. The UK competition authority has examined how much influence they have: consultants there influence more than £1.6 trillion of pension assets; the report names Aon, Mercer and WTW as global providers, and the three largest had a market share of around 54% in fiduciary management (delegating investment decisions to a service provider) in 2017, up from under 10% in 2007 (CMA 2018). Since the 2019 order, UK pension schemes that want to hand at least 20% of their assets to fiduciary managers have to run a tender with at least three providers (CMA, Order 2019).

Manager databases collect returns, assets, fees and team data on institutional products; the study by Jenkinson et al. (2016), for example, uses data from eVestment and surveys of consultants by Greenwich Associates. Such databases are handy for the longlist, but they only contain what the managers themselves report.

Public-sector clients are in principle subject to public procurement law. However, Section 116(1) no. 4 of the German Act against Restraints of Competition GWB § 116 (2016) exempts financial services in connection with the issue, sale, purchase or transfer of securities and other financial instruments. Whether a management mandate falls under this is a legal question for the individual case, which we cannot answer here.

Questionnaires: RFI, RFP and DDQ

The request for proposal asks about the strategy, a due diligence questionnaire (DDQ) about the organisation behind it. So that managers do not have to answer different questions for every investor, industry associations provide templates:

• ILPA DDQ: with its questionnaire, the Institutional Limited Partners Association standardises the most common due diligence questions put to private markets managers; the current version 2.0 dates from 2021, and the ESG section is based on the PRI questionnaire (ILPA DDQ 2021).
• AIMA DDQ: the Alternative Investment Management Association publishes a modular model questionnaire for the due diligence of investment managers; the 2025 edition revises areas including performance presentation, liquidity risk, anti-money laundering and costs, and adds a new module for private markets (AIMA 2025).
• Performance under GIPS: many RFPs require returns in line with the Global Investment Performance Standards, i.e. time-weighted and in a composite made up of all fee-paying, discretionary portfolios in the strategy, so that nobody shows only their best accounts (CFA Institute 2019).

Evaluation criteria and scoring matrix

To make the decision traceable, investors set criteria and weights before reading the answers and award points for each criterion, here from 1 (weak) to 5 (very good). Typical criteria are philosophy and process, team and organisation, performance record, risk management, costs, ESG and stewardship, and operations and capacity, i.e. whether the strategy can absorb more money.

Fees: tiered schedules and comparison

Institutional mandates are usually offered with a tiered fee schedule in basis points (1 bp = 0.01%): the rate falls as the volume rises, but only for the portion above each breakpoint.

On top of this come performance-related fees (a performance fee with a hurdle and a high-water mark), custodian costs and trading costs, which are not included in the management fee. How strongly costs compound over the years is shown in the article reporting.

Contract, transition and monitoring

The IMA sets out the investment objective and guidelines, benchmark, permitted instruments, reporting, fees, liability, proxy voting and termination. When a manager is replaced, transition management comes in: holdings of the old manager that the new one wants to keep are transferred rather than sold, and the rest is traded. Success is usually measured by the implementation shortfall, i.e. costs and market movement relative to the value at the start.

Then the real work begins: return and risk against the benchmark, style analysis to catch style drift, attribution for the sources of outperformance or underperformance, and regular conversations about team and process. Many investors keep a watchlist before terminating a mandate, and above all check whether the manager is still doing what they were selected for.

For advanced readers: how long do you need to measure?

A track record of three or five years says little about skill. With the information ratio IR (active return divided by tracking error), the t-statistic of the active return over T years is roughly IR × √T. For a t-statistic of 2, you therefore need:

The calculation assumes normally distributed, independent active returns. On top of that comes selection: it is mainly strategies that have done well that get reported (survivorship bias). Factors help further: if the excess return can be explained by value, size or momentum, it is often also available more cheaply than through an active mandate.

What the research shows

Goyal and Wahal (2008) examined the hiring and firing decisions of 3,400 pension plans from 1994 to 2003. The plans hired managers after large positive excess returns, which then failed to continue; for pairs of firings and new hires, they would have done no worse with the managers they fired. Stewart et al. (2009) reach a similar picture using 80,000 annual observations from 1984 to 2007: products that received inflows performed worse over the following one, three and five years than products with outflows.

The starting point is sobering too: across 4,617 active institutional US equity products from 1991 to 2008, Busse et al. (2010) find on average no alpha different from zero after factors, and hardly any persistence. And the consultants? According to Jenkinson et al. (2016), the recommendations of consultants covering 91% of the US market are based mainly on soft factors and steer the flows; equally weighted, however, the recommended products trailed the others by 1.12% a year from 1999 to 2011, while value-weighted the difference was not significant. The UK competition authority found that recommended products beat their benchmarks before fees, but barely after them (CMA 2018). This fits Sharpe (1991), according to whom the average actively managed euro must trail the passive one after costs.

Common mistakes

• Performance chasing: choosing the manager with the best last three years and firing them again after a weak spell. That is exactly the pattern from the studies above.
• Adjusting the weights after the fact until the favourite comes out on top.
• Underestimating costs: besides the fee, also transition, trading, custody and your own team's time.
• Mistaking style for skill: a value manager in a value year is not automatically good; check factors and style.
• Ignoring capacity and key people: if the strategy grows strongly or the portfolio manager leaves, the product you selected becomes a different one.
• Treating operational due diligence as a formality: errors in valuation, custody or controls often cost more than weak performance.

How Portfolio Lab calculates it

Portfolio Lab has no RFP tool with questionnaires or scoring, and the app has no access to managers' composites or GIPS data. For the quantitative part of a manager comparison, however, you can analyse publicly traded funds following a strategy as proxies:

• Backtest: metrics against a benchmark (beta, alpha, R², tracking error, information ratio, and upside and downside capture).
• Factors: regression of the excess return on Fama-French factors with t-statistics, optionally with Newey-West. Is the alpha still there after factors?
• Style analysis: Sharpe's returns-based style analysis with style weights, selection return, tracking error and information ratio, also on a rolling basis to spot style drift.
• Risk & attribution: Brinson-Fachler attribution by region, sector or asset class, and factor attribution.

More in the style analysis methodology; what studies show about active funds overall is covered in Active or passive?.

This article explains a method; it is not investment or tax advice. Worked examples are simplified and rounded. All terms in the glossary.