Public Financial Management, Inc. (PFM, Inc.) was founded in 1975 to provide independent financial
advisory services to the public sector. PFM, Inc. began providing investment advisory services to public entities
in 1980. In 2001, PFM Asset Management LLC (PFMAM) was created as the entity through which investment
advisory services are provided. Effective June 1, 2016, financial advisory services historically offered through
PFM, Inc. are being offered through a new operating company, PFM Financial Advisors LLC (PFMFA). PFM, Inc.,
PFMFA, PFMAM and certain other affiliated companies are collectively referred to as “PFM”.
PFMAM and the other related businesses within PFM are organized in a holding company structure, and
are indirect, wholly owned subsidiaries of the holding company, named PFM I, LLC.
PFMAM is a Delaware limited liability company.
As of December 31, 2018, the amount of client assets we managed on a discretionary basis was
$94,103,777,992.80 and the amount we managed on a nondiscretionary basis was $1,207,414,365.91. In addition,
as of December 31, 2018, we provided investment consulting services with respect to assets in the amount of
$40,837,028,192.22.
We offer the following types of investment advice:
1. Discretionary Advice. We offer discretionary advisory services for government, nonprofit and other institutional investors who
invest in fixed-income and multi-asset class strategies. When a client gives us investment discretion, we have the
authority to determine, without obtaining specific approval, (1) overall asset allocation, (2) the manager or sub-
adviser to be utilized for the portfolio, (3) the specific securities to be bought and sold, (4) the amount of securities
to be bought and sold and (5) the broker or dealer through which the securities are bought or sold. These decisions
are subject to limitations of law and any other restrictions in the contract with our client and limitations in our
client’s written investment policies. Under these types of engagements, we assume day-to-day management
responsibility for the assets covered by the investment advisory agreement. Examples of the securities we may
recommend include U.S. Treasury securities, Federal Agency securities, high-grade corporate obligations, mortgage
and asset backed securities, municipal securities, institutional mutual funds, and money market instruments. We
arrange for the purchase and sale of these securities to meet the investment objectives and cash flow requirements
of each client.
We manage fixed-income portfolios, often on a total return basis. We also implement liability-driven
strategies that seek to generate cash flows from a portfolio of fixed-income securities to match specific liabilities
such as bond-funded defeasance accounts, construction accounts or insurance liabilities.
We also provide services to the PFM Multi-Manager Series Trust (MMST or the Trust), a registered open-
end investment company, utilizing a manager-of-managers structure. The Trust offers different funds (MMST
Funds), with each MMST Fund having specific investment objectives, policies, and restrictions. We are responsible
for, among other overall management services, determining investment strategies, selecting and monitoring
unaffiliated investment sub-advisers for each MMST Fund and for allocating and reallocating assets among the sub-
advisers consistent with each MMST Fund’s investment objective and strategies.
For some of our clients, including trusts, pension plans, endowments, foundations, other post-employment
benefits (OPEB) plans or other similar asset pools, we serve as a discretionary manager to invest a client’s assets in
multiple types of investments. Generally these accounts include a variety of asset classes, which may include
domestic equity, international equity, fixed-income, and alternative asset classes, including shares of MMST Funds.
We provide multi-asset class investment services in two forms. One form is a wrap fee program known as
the Managed Accounts Program (MAP), where we charge a single fee to include investment advisory, third-party
custody and administrative services. We are no longer marketing MAP to new clients. The other is a general
discretionary form where we unbundle some of the service fees, which allows the client to separately negotiate
these fees (for example, custody fees). This form of multi-asset class management is referred to as a fund of funds
approach. It may also be described as outsourced CIO, implemented consulting and a variety of other generic terms.
In each of these two general forms of management, we work with the client to determine a target asset allocation
based on a variety of risk and return characteristics. We then implement the asset allocation, either by buying shares
of mutual funds (including ETF’s) and/or pooled funds or other investment vehicles (collectively, Funds), or by
selecting separate account managers who will manage separate accounts of specific asset classes and/or strategies,
including the MMST sub-advisers (Investment Sub-Advisers). Shares may include those of the MMST Funds.
Under this approach, we have discretion to make the initial selection of the Funds or Investment Sub-
Advisers. We also provide ongoing periodic monitoring services by evaluating the Fund’s or the Investment Sub-
Adviser's portfolio management philosophy, policies, processes, controls, personnel and investment performance.
Clients who hire us give us authority to change, drop or add Funds or Investment Sub-Advisers. The client generally
gives the Investment Sub-Advisers both investment and brokerage discretion in managing its portion of the
portfolio. We give these clients periodic reports on the investment performance of the various Funds, Investment
Sub-Advisers and the portfolio as a whole.
We assist clients in establishing the basis for asset allocation by preparing a written investment strategy.
These clients give us authority to re-allocate assets and to change, eliminate or add managers or investments within
the scope of the investment strategy.
2. Services to Registered Investment Companies and Local Government Investment Pools PFMAM currently provides investment advisory and/or administrative services to 17 pooled investment
programs (generally known as local government investment pools) across 15 states, as well as to two registered
investment companies whose series or classes are registered in multiple states. We generally, but not always,
provide administration services and an affiliate generally provides distribution services as described in this
document. Where PFMAM is the investment adviser to a pooled investment vehicle, investment objectives,
guidelines and any investment restrictions are not tailored to the needs of individual investors in those vehicles, but
rather are described in the relevant offering documents for the vehicle.
3. Nondiscretionary Advice We also may provide advice on a nondiscretionary basis where we offer clients investment
recommendations, subject to their specific approval and further execution instructions. In this case our client makes
trades directly or specifically approves our purchase or sale of specific securities, including certificates of deposit.
4. Consulting Services We also provide nondiscretionary investment consulting services to:
governmental entities;
public, Taft-Hartley and corporate pension funds;
hospital endowments and foundations;
trusts;
OPEB plans; and
other similar institutional investors.
For certain of our clients, these consulting services may consist of providing general portfolio and
management assistance, in which we assist the client in reviewing its investment policy and providing advice on
management of broker and banking relationships. We may also assist in areas such as cash flow reviews, analysis
of the characteristics of client’s portfolio, market commentary, portfolio analytics, portfolio reporting, and credit
analysis support.
These consulting services consist of overseeing a client’s portfolio where we have not been given authority
to buy or sell securities in the portfolio. We typically begin these services by assessing the client's investment
objectives, time horizon and risk tolerance. Using this information, we then propose asset allocation models within
the investment guidelines which the client gives us. We may also assist in writing an investment policy which
provides details about the objectives, diversification, quality and performance measurement of the portfolio. We
also make recommendations on the selection of money managers, pooled trusts or mutual funds to carry out the
client’s investment strategy. Once our client puts the investment policy into place, we report quarterly to the client
on the investment performance. We also report on whether an investment manager chosen follows its particular
style, and whether our client’s portfolio complies with its investment policy.
We also provide consulting services to OPEB plans and pension plans. These services involve financial
reporting, analyzing cash flow implications of different funding strategies, and other matters relating to the OPEB
benefits or pension benefits and funding arrangements. Often we perform these services by cooperating with our
client’s other professional advisors, such as the client’s accountant or actuary.
5. Structured Products We also provide analytical services for designing and procuring portfolios in connection with the current
or advance refunding of municipal bonds and the investment of bond proceeds. For these engagements we arrange
for purchases of specific securities that are generally government obligations or structured investments such as
forward delivery agreements. On our client’s behalf we arrange these purchases by obtaining bids on a competitive
basis or in rare instances by negotiating on behalf of our client.
6. Treasury Consulting Services We also provide clients with services to assist with the design and procurement of banking and custody
services. For each client, we conduct a detailed assessment of current banking arrangements. We evaluate the
client’s needs, analyze existing banking relationships, review how bank services fit into cash management and
investment systems, and make specific recommendations to improve certain systems.
7. Services for Banking and Other Similarly Chartered Financial Institutions We also offer discretionary and nondiscretionary advice tailored for banks and other similarly chartered
financial institutions which invest in fixed-income securities. These services are tailored to the particular
investment needs, restrictions and requirements which apply to these types of clients. These decisions are subject
to limitations of banking regulatory requirements, and any other restrictions in the contract with our client and
limitations in our client’s written investment policies. Examples of the securities we may recommend include U.S.
Treasury securities, Federal Agency securities, high-grade corporate obligations, mortgage and asset backed
securities, institutional mutual funds, and money market instruments. We arrange for or recommend the purchase
and sale of these securities to meet the investment objective, strategies, and risk position of each of these types of
client.
8. Stable Value Management We also offer stable value strategies that typically include fixed-income investments and benefit-responsive
wrap contracts or "wrappers" offered by banks and insurance companies with an overall objective of seeking capital
preservation and current income. Stable value strategies are generally offered to defined contribution retirement
plans either as a separately managed account (which we presently offer) or as a commingled fund.
These structures may utilize any of the following types of investments, which we refer to as “Stable Value
Contracts”:
Guaranteed Investment Contracts (GIC): This is a stable value investment contract issued by an
insurance company that pays a specified rate of return for a specified period of time and is backed
by the financial strength of the issuing entity. The underlying securities are typically held on the
issuing insurer’s balance sheet in either a general or separate account.
Synthetic GIC: A synthetic GIC is a contract that simulates the performance of a traditional GIC
through the use of financial instruments. The underlying assets associated with a synthetic GIC are
held in trust for the benefit of the investing plan’s participants. Those assets typically include high-
quality fixed-income securities which we manage. To enable the policyholder to realize a specific
known value for the assets if it needs to liquidate them, synthetic GICs utilize a benefit-responsive
"wrapper" contract that is designed to provide market and cash flow risk protection to the
policyholder.
Separate Account GIC: A stable value investment contract issued by an insurance company. The
underlying assets which we manage are owned by the issuing insurance company but held in a
separate account for the benefit of participating plan or plans.
For client stable value accounts, Synthetic and Separate Account GICs typically require that we manage
the account(s) within specified investment guidelines as a part of the underwriting and contract process of the issuer
of the GIC. These additional guidelines may serve to limit the scope or types of investments otherwise included
within a client portfolio, which could result in a lower return to investors.
As part of a stable value strategy for the assets we manage, we will make allocations to various underlying
strategies, monitor and maintain portfolio duration, and coordinate the resources of various investment, legal and
compliance professionals as well as potentially third-party managers. An ongoing review of portfolio structure, cash
flow history, guidelines and objectives for each client will occur. We may provide a full range of services for
particular stable value clients, or services may be focused on a subset of stable value management such as advising
on overall structure or third-party manager asset allocation.
Entering into Stable Value Contracts is an important aspect of stable value management. We will identify
and select, or assist in the selection of, the financial organizations issuing Stable Value Contracts and negotiate
contracts on behalf of clients.
9. General Approach to Advisory Services We tailor our advisory services taking into account following factors: the services that the client has requested;
the client’s investment objective;
the client’s investment policy;
the client’s time horizon; and
the client’s risk tolerance.
A client may impose additional restrictions on the types of securities in which we can invest, or on the
maturity of securities. We adhere to any investment restrictions provided by the client.
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The fees we charge to our advisory clients vary depending upon a number of factors including the types of
investments permitted, the personnel providing the advisory services, the particular strategy, the size of portfolio
being managed, the relationship with the client, and service requirements associated with the account.
Fees may also differ based on account type (e.g., a commingled, pooled account or a separate individual
portfolio account).
Fees are negotiable so one client may pay a higher fee than another client with similar investment objectives
or goals.
1. Discretionary Advice – Separate Accounts We generally receive compensation calculated as a percentage of assets we manage. We receive this
compensation after a service is provided, and we bill in arrears on a monthly or quarterly basis. As a general
guideline, we charge the following fees for investment advisory services for fixed-income separate account
management and stable value strategy management:
Fixed-Income Assets Under Management Annual Rate First $25,000,000 0.25%
Assets in Excess of $25,000,000 0.15%
Stable Value Assets Under Management Annual Rate First $50,000,000 0.30%
Next $50,000,000 0.25%
Next $150,000,000 0.15%
Next $250,000,000 0.10%
In excess of $500,000,000 0.075%
Generally, the fees we charge for these types of engagements are calculated based on the value of the assets
as determined by us using the agreed-upon measure in the contract with our client.
Some clients may receive lower fees than this, based on the nature of the mandate or the size of the accounts.
As a general guideline for the multi-asset class management discretionary form, we charge the following
fees for investment advisory services:
Assets Under Management Annual Rate First $10,000,000 0.45%
Next $10,000,000 0.35%
Next $30,000,000 0.25%
Next $50,000,000 0.20%
Assets in Excess of $100,000,000 0.15%
Generally, the fees we charge for these types of engagements are calculated based on the agreed-upon
measure in the contract with our client, typically market value of assets, as determined by the custodian.
For certain accounts, we may charge a minimum fee. However, when a fee for an account, as calculated
above, exceeds the minimum fee, the calculated fee applies, rather than the minimum fee.
We use the following fee structure as a general guideline for MAP, which is no longer open to new clients:
Assets Under Management Annual Rate First $5,000,000 1.00%
Next $5,000,000 0.85%
Next $10,000,000 0.75%
Assets in Excess of $20,000,000 0.60%
These MAP fees include the following services: asset management, investment advisory (including mutual
fund fees) and custody. However, the MAP fee does not include front or back-end fees for the mutual or pooled
funds we select, any taxes or fees of attorneys, accountants, auditors or other professionals advising the client. A
portion of the fee for MAP is used to compensate the Investment Sub-Advisors.
2. Registered Investment Companies and Pools The fees we charge for the investment services we provide to the registered investment companies and local
government investment pools vary by program. Typically the fee schedule includes various breakpoints depending
on asset levels, and may include fee caps or waivers which can be triggered by the overall expense ratio of the pool.
We may also receive compensation for providing marketing and administrative services to the shareholders of each
registered investment company and to investors in the local government investment pools.
We generally provide these administrative and marketing services as an integral part of our investment
advisory services, and the fees we receive for these services may be included as a component of the investment
advisory fees we charge.
3. Nondiscretionary Advice We generally charge fixed fees for these services, depending upon the services that the client requests, and
the complexity of the services. We also offer nondiscretionary advice on certificate of deposit investment programs,
which are designed to provide clients with a fixed rate to a fixed maturity date. Fees typically range up to 0.25%
per annum of the cost of the investment purchased by our clients. Under the certificate of deposit programs, we
provide clients with the option to set aside moneys in client accounts to pay our fee after we have performed the
service.
4. Consulting Services For investment consulting services where we have not been given authority to buy or sell securities in the
portfolio, we generally charge clients either a fixed fee or a fee that is based on a percentage of assets. The fixed
fee is based on the size of the portfolio, complexity, and scope of services which our client wants us to perform. As
a general guideline, we charge asset-based fees in a range from 0.05% to 0.30% annually, based on the
characteristics listed above. From time to time, we charge hourly fees for these types of services.
For consulting services and reports we provide to OPEB plans, we charge a fixed fee generally in the range
of $10,000 to $150,000, depending on the specifics of the services we agree to provide.
5. Structured Products In these types of engagements, we usually charge a fixed fee. The client may pay the fee, or may instruct
the investment contract counterparty or underwriter in writing to pay our fee on the client’s behalf. We and our
clients agree upon a fee for each of these engagements and the fee is a function of the size and complexity of the
engagement. As a general guideline, the typical fee for investment of municipal bond proceeds in a structured
investment, or in a refunding bond escrow structuring and procurement engagement, is less than or equal to 0.2%
of the cost of the portfolio or the sum of the total deposits under the agreement. In limited circumstances, the fee
will be higher, often because the portfolio is small.
6. Other Important Information about Our Compensation Because we tailor our services to the individual needs of a client, we may offer clients more than one of the
services mentioned above. In addition, we may also provide services not mentioned above, such as assisting our
clients with a one-time purchase or sale of securities. The fees we charge are negotiable and vary depending upon
the particular services we perform and the complexity and extent of the work we provide.
We may charge a minimum fee for small accounts, as explained in Item 5, subsection 1 above. Other than
these minimum fee requirements, there are no other requirements for maintaining the account.
All fees are payable to us only after we perform the services; we do not require our clients to pay our fees
in advance. Under the majority of our investment advisory engagements, clients authorize us to deduct fees from
their investment accounts after they are notified. Under some engagements, the client pays our fees from other
sources. The method of payment of our fees is subject to negotiation, and clients have the ability to choose the
method of payment, depending on the type of service. For most of our accounts, we bill monthly in arrears. Under
some client contracts, we bill the client quarterly. For some services, we bill the client on a one-time basis only
when we complete the service.
For services we provide, other than those under MAP, clients are responsible for their own brokerage, sub-
advisory, custody and legal fees and taxes, if any. For the services we provide under our MAP, we charge clients a
wrap fee. The wrap fee covers fees payable to the portfolio managers of the funds we choose for our MAP and the
fee we pay to the custodian for MAP for custodial and administrative services. The portion of the wrap fee paid to
portfolio managers of mutual funds generally is in the form of the expense ratios and is deducted automatically by
the mutual fund company from the assets invested in the funds. We receive the remainder of the wrap fee, and apply
a portion of the fee to pay the custodian pursuant to agreements between the custodian and us. We no longer offer
MAP to new clients; a copy of the MAP wrap fee program brochure is available upon request.
We have a wholly-owned subsidiary, PFM Fund Distributors, Inc., which is a broker-dealer under the
Securities Exchange Act of 1934. PFM Fund Distributors, Inc. typically serves as exclusive distributor of shares of
registered investment companies and local government investment pools (Pooled Funds) for which we serve as
investment adviser and/or administrator and we receive fees from this arrangement, as more fully described in Item
10, below.
No supervised person of our affiliated broker-dealer is compensated for the sale of securities.
PFMAM employees are paid a base salary plus a year-end bonus. The annual bonus is dependent upon the profitability of the firm, each group’s contribution to the overall profitability of the firm, and each individual’s
contribution to the group’s success. Thus, PFMAM personnel may receive a portion of their bonus based on
marketing success which could include revenue derived from investment transactions. The firm’s compensation
plan is intended to recognize and reward excellent performance on the part of individuals; however, no PFMAM
employee is compensated on a commission-related basis. Managing Directors also may have the obligation to buy
equity in PFM as part of the bonus process.
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In rare instances, we enter into advisory agreements under which the client pays us a fee, part of which is
performance based. For example, we have entered into agreements where the client pays us all or part of our fee to
the extent that the performance of the portfolio we manage exceeds a predetermined benchmark, measured over a
designated period of time. We manage both accounts that are charged a performance-based fee and accounts which
are charged other fees, typically a percentage of the value of assets managed. To address any concern that we may
have an incentive to favor certain investment opportunities for a performance-based account, we follow written
procedures designed to allocate trades on an equitable basis considering the investment objectives of the account
and without regard to whether an account has a performance-based fee. Accounts with the same objectives and
permitted investments should receive a fair allocation of trades over time.
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PFMAM provides investment advisory services to institutional investors, including state and local
governments and their agencies, local government investment pools, non-profit organizations, pension and OPEB
funds and corporations. For information concerning minimum fee requirements, please see Item 5 above.
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Fixed-Income Portfolios – Analysis and Strategy Overall strategies are developed by the Fixed-Income Investment Committee which considers the
macroeconomic and interest rate conditions described below. The strategies provide guidance for portfolio
managers with regard to appropriate duration and sector allocation targets for individual portfolios. We use a variety
of analyses as well as internal and external data sources and market research. External sources include various news
and information sources, books, governmental bulletins, data bases, research prepared by others and publications
from rating agencies, unaffiliated broker-dealers and third-party information providers. We also collect information
from clients to determine their liquidity requirements, risk tolerances and any other policies or procedures that guide
the investment of the client’s assets.
Within the investment objectives and other requirements of the particular client, for clients whose objectives
are measured by total return or income our investment approach emphasizes the use of active management strategies
that seek to add value while limiting market and credit risk. For liability-driven investment portfolios, such as those
funded with bond proceeds and used to pay project costs, we identify securities whose cash flows are expected to
meet a draw schedule and we modify the portfolio as the draw schedule changes or as investment opportunities
present themselves, although in the latter case the draw schedule is considered when making modifications.
Our Fixed-Income Active Management Process The following describes our fixed-income investment strategy:
Disciplined decision making process;
Duration positioning to manage risk: generally manage durations so they are close to relevant
benchmarks, policy of no more than +/- 25% of a related benchmark, which is designed to protect the
market value of the portfolio; and
Seeks out relative value through spread analysis, yield curve positioning, sector weightings and
duration management.
We use top-down analysis to assess macroeconomic conditions including interest rates, the shape of the
yield curve, Federal Reserve monetary policy, and current and historical yield spreads between sectors. Top-down
analysis is a key element of our duration and sector allocation decision-making process. We believe identifying
macro-level trends in these areas is important for adding value, controlling risk, and lowering volatility.
We use a careful bottom-up approach to security selection that seeks to identify those industries and issuers
with fundamental characteristics and financial strength that enhances their potential to perform well. We
seek to combine fundamentally sound investments into a portfolio that optimizes return potential in consideration
of investment guidelines or restrictions.
Lastly, we incorporate low-risk active management techniques designed to enhance our relative value
approach. We believe active management can capture market inefficiencies that create opportunities for return
enhancement. While we expect that every security we buy will be suitable to hold to maturity, we frequently
identify opportunities to swap one investment for another to increase earnings, adjust portfolio duration, improve
liquidity, or restructure a portfolio to better meet future needs.
Many of the accounts we manage are short and intermediate-term fixed-income assets of governmental
entities, so we have tailored our research capabilities and resources to this area of the market. Our portfolio managers
and analytical team have access to three major on-line market trading systems: Bloomberg, MarketAxess, and
TradeWeb. These systems provide active market quotes, including real-time securities pricing services. We also
have access to news from Dow Jones, the Associated Press, Bloomberg News, and several specialized news
services. In addition, we communicate daily with approximately 30 major government securities dealers and receive
market information from them that assists us in identifying specific market opportunities. We supplement these
external systems and data sources with proprietary trading tools which we have developed.
After factoring in a conservative posture of selecting investment maturities to meet cash flow requirements,
we will position a portfolio’s duration to take advantage of expected interest rate movements: positioning with a
shorter bias when we expect rates to rise and longer when we expect rates to fall. We establish a duration (or average
maturity) target for the portfolio based on our macro view of the economy and the financial markets, the type of
funds, cash-flow analysis and benchmark chosen by a client. We seek to add value by re-balancing the portfolio to
take advantage of market opportunities and in anticipation of interest rate movements. Duration limits are
established by our Fixed-Income Investment Committee and may be provided to and evaluated with our clients’
staff on a regular basis as a management and oversight tool.
While maintaining the target duration range for a portfolio, we add value through asset allocation strategies
which involve sector selection (security type), curve placement (maturity), spread analysis and issue selection
(individual issuer). Our overall view of the financial markets provides the context for selecting maturities which
represent the best relative value along the yield curve and the highest potential for enhanced return by “rolling down
the curve” and for selecting specific securities within a sector. We perform extensive proprietary analysis on the
yield curve to identify “cheap” areas of the curve, and to evaluate a variety of portfolio structures. Using the results
of this analysis, our portfolios are frequently over-weighted in certain maturities, and are structured in either a
“bullet”, “barbell” or “laddered” construct to provide optimal performance.
We think there is a significant opportunity to enhance earnings with a strategy that focuses on the selection
of securities based on relative value. Sectors are selected which represent the best relative value based on our sector
outlook and historical sector spreads. Investments other than Treasuries are purchased when spreads are wide and
avoided or swapped out when spreads are narrow. Our portfolio managers and traders are assigned to specific
market sectors in order to monitor products and opportunities and these responsibilities run across all portfolios.
Individual issues are selected based on our assessment of issuer financial quality and rating trends, interest rate
spread, credit trends, issue structure and liquidity. Portfolios are generally diversified by security type and maturity
to avoid a significant investment in a single issuer and to accommodate varying cash flow needs to provide periodic
liquidity.
Fixed-Income Portfolios – Risk Our fixed-income strategies, like all investment strategies, involve certain risks. For portfolios whose
investments are limited to obligations of the U.S government we believe the risk of default is minimal; for those
invested in obligations of Federal agencies, we believe the risk is nearly as low as it is for direct obligations of the
U.S. government. Portfolios whose investments include corporate and municipal obligations are subject to the risk
that an issuer will fail to pay principal or interest on a timely basis, while those containing mortgage-backed
securities are subject to the risk of uncertain timing of principal payments. In order to manage risks, we seek to
diversify portfolio holdings and we limit our investments in corporate and municipal obligations and in mortgage-
backed securities to those that are high grade.
Portfolios are also subject to interest rate risk. This is because the market value of securities changes as
interest rates change, with a rise in rates reducing market values and a decline in rates increasing market values.
Changes in interest rates affect longer maturity securities more than they affect shorter maturity securities. We
manage this risk by varying the duration of portfolios other than those that are liability-driven in accordance with
our outlook for interest rates, and by managing these portfolios within duration ranges. Nonetheless, investors
should expect to experience interest rate volatility in short-term fixed income portfolios and total return volatility
which can include unrealized losses in excess of periodic income in intermediate and longer-term portfolios.
Although the investment strategies we employ do not involve significant or unusual risk beyond that of the general
domestic fixed-income markets, investors need to recognize that investing in securities involves a risk of loss that
the investor should be prepared to bear. Past performance is not a guarantee of future returns.
The risk of our top-down strategy is that our macro view of the economy and financial markets is wrong
and we position a portfolio’s duration or sector allocation in a manner that is not optimal. We seek to manage this
risk by limiting variations from duration or maturity targets and by diversifying holdings among security types. For
liability-driven investment portfolios, we seek to minimize market risk by approximately matching portfolio cash
flows with expected liabilities.
The risk of our bottom-up strategy is that securities that we include in a portfolio because they are perceived
to have relative value may later lose value when compared with other securities. We seek to manage this risk by
careful and systematic analysis of relative values by performing credit analysis on issuers of securities we
recommend and by diversifying holdings.
Frequent trading of securities can create higher overall transaction costs and these will reduce portfolio
income. We do manage portfolios actively and we seek to minimize trading costs by recommending liquid issues
that are actively traded in the markets and by utilizing competitive bidding wherever feasible.
Stable value strategies are subject to many of the risks described above as well as those risks related to
stable value contracts, which are designed to permit plan participant withdrawals relating to activities such as
investment option transfers, withdrawals on account of a participant’s death, disability, retirement or other
termination of employment, and in-service withdrawals in accordance with the plan, to occur at book value on the
terms set forth in each contract. Stable value contracts typically include provisions that could serve to limit plan
sponsor flexibility to implement desired plan changes. In addition, plan sponsors are obligated to notify the stable
value manager of plan changes, in certain cases before changes are implemented.
The obligations of providers of stable value contracts are those of the providers, not us. There is no
guarantee that stable value contracts will continue to be valued at their contract value rather than market or fair
value or that providers under stable value contracts will fulfill their obligations. If the assets under a stable value
contract were revalued at their market values, for purposes of redeeming investments by participants in a retirement
plan, this could cause a significant loss in value to the investor.
Stable value contracts generally have terms that provide that certain contract withdrawals will not be paid
by the provider at contract value, but would be subject to a market value adjustment to the contract value for
withdrawals associated with specified events or circumstances, or when the provider determines that it could create
a material adverse effect on its financial interests. While each contract’s terms may differ, events or circumstances
which may trigger a market value adjustment can typically include all or some of the following: (1) amendments to
the plan documents or plan’s administration; (2) additions of or changes to a plan’s competing investment options;
(3) manager change; (4) complete or partial termination of the plan or merger of the plan with another plan; (5) a
withdrawal resulting from an event initiated or directed by the plan sponsor (“employer initiated event”), e.g.,
withdrawals due to the removal of a group of employees from the plan’s coverage (such as a group layoff or early
retirement incentive program), or the closing or sale of a subsidiary, employing unit or affiliate; (6) changes in law
or regulation applicable to the plan; (7) the delivery of any communication to plan participants designed to influence
a participant not to invest in the stable value account.
In addition, certain stable value contracts typically provide for an adjustment to contract value if a security
that is part of the covered assets defaults or otherwise has its credit risk deteriorate or becomes “impaired” as defined
in the contract. Stable Value Contracts also define certain termination events, such as plan merger, bankruptcy of
the plan or its sponsor, excessive impaired securities, changes in law or default by the plan under the contract, that
permit the provider to terminate the contract at market value and the account will receive the market value of the
covered assets as of the date of termination.
The market for stable value contracts is not unlimited. There can be no assurance that sufficient Stable
Value Contracts will be available in the future to replace or supplement existing contracts or, even if available, will
be available on favorable financial terms. Certain Stable Value providers offer bundled arrangements, under which
the provider has both the contract value obligation and the provider (or an affiliate) manages the underlying
portfolio.
Multi-Asset Class Asset Management – Analysis and Strategy The Multi-Asset Class Investment Committee plays a key role in the investment services delivered to clients
by establishing asset allocation targets and approving managers/funds for all discretionary multi-asset class
accounts. The Multi-Asset Class Investment Committee provides investment and portfolio risk oversight for
investment decisions, and convenes regularly to discuss any changes necessary.
We use a consistent approach to multi-asset class accounts that involves portfolio planning, risk assessment,
asset allocation determination, manager selection, and performance reporting. The primary difference between
discretionary and nondiscretionary types of accounts relates to who provides direction relating to the allocation of
assets to separate account managers and the execution of mutual fund buy and sell transactions. For discretionary
accounts, we are authorized to instruct the custodian to rebalance the portfolio, move assets among separate account
managers and/or to arrange for the purchase or sale of mutual fund holdings.
We believe that the asset allocation decision is the most important factor in determining the expected
investment return of a portfolio.
The strategies are implemented in multi-asset class accounts, largely by investing in mutual funds advised
by advisers that are not affiliated with us. In MMST the strategies are implemented by allocating assets to
Investment Sub-Advisers. Shares of MMST Funds may also make up a portion or all of the assets of a multi-asset
class account.
Compiling Capital Market Assumptions
Portfolio strategies are based on Capital Market Assumptions that are determined by the Multi-Asset Class
Investment Committee. Our assumptions are for intermediate- and long-term returns in a wide range of asset classes.
For the intermediate term (five years), our Capital Market Assumptions are derived from our assessment
of current economic conditions, including corporate profits, balance sheets, and current valuations for
various asset classes.
Our long-term assumptions (thirty years) are derived using an economic building block approach that
projects economic and corporate profit growth, and that takes into consideration the fundamental factors
driving long-term real economic growth, and our expectation for inflation, productivity and labor force
growth.
Engaging in a Portfolio Planning Survey
We begin the asset allocation process by reviewing a detailed portfolio planning survey with a new client.
The survey is designed to facilitate a discussion of all of the asset classes to determine which should be permitted in
the final overall allocation.
In addition, through a series of questions, the survey would bring to light information about goals,
objectives, cash flow projections, risk tolerance, ability to withstand losses, as well as the view of the economy and
the markets. In summary, the portfolio planning survey documents the level of expectations so that everyone
understands the goals that have been set for the investment of the assets.
The survey results are updated periodically during an ongoing engagement as client circumstances change.
Determining Asset Allocation Structure
The information from the portfolio planning survey and the Capital Market Assumptions is used to design
and keep current an asset allocation plan for the client. We use a modeling program from Ibbotson Associates, along
with an internally-built modeling program, which allows us to conduct a more detailed asset/liability modeling study.
Each model uses the latest historical data on asset class investment returns, volatility, and correlation with other
asset classes along with our Capital Market Assumptions to determine an "optimal" portfolio.
Selecting an Appropriate Asset Mix
A series of tests is run on each model to determine the probability of achieving the desired investment
objective under different market scenarios. Existing funding requirements may override the more subjective
“tolerance for loss.” We use this process, to help inform our clients of the range of possibilities associated with each
asset allocation plan, and to identify a plan that best meets the expectations set forth in the portfolio planning survey.
Investment Manager Selection
Our research team is focused on monitoring the investment products included in our client portfolios. The
research analysts are assigned to a specific asset class for which they are responsible. Both the research analysts
and our Director of Research correspond with investment managers on a regular basis and meet with investment
managers routinely to maintain an understanding of each manager’s investment process and strategy. As part of
the ongoing manager due diligence, the research analysts run a series of risk/return statistics, peer universe analysis,
portfolio attribution and style analysis on all of the investment strategies employed in our clients’ portfolios to
ensure they continue to be an appropriate component of the overall portfolio. As a result, our research team is able
to provide the clients with valuable information about potential investment managers.
Rebalancing
We evaluate a client’s portfolio regularly to determine the need for rebalancing the portfolio based on
factors including current allocation targets, perceived assessment of relative value, and changes in Capital Market
Assumptions. For multi-asset class portfolios where we have discretion we establish target levels for each asset
class in the planning stages along with a minimum /maximum range and may update these as our Capital Markets
Assumptions and market conditions change. These parameters are input into the client’s investment policy statement
and are illustrated in the quarterly reports. We have invested in software that allows our staff to monitor compliance
of a client’s portfolios.
Ongoing Monitoring
We monitor a client’s asset allocation, as well as the portfolio’s money managers/mutual funds on an
ongoing basis through detailed analysis and our proprietary manager ranking system. For our discretionary
accounts, we place a manager or fund on the watch list as a result of lagging performance, poor risk metrics and/or
qualitative issues, among other things. Removal from the watch list is typically based on several quarters of
improved performance against peers and an appropriate benchmark or remediation of other issues. If problems
endure, probation is a subsequent step in the process of reviewing managers. Ultimately, if the problem persists,
our Multi-Asset Class Investment Committee approves a termination recommendation.
We continually evaluate the economy, financial markets, and correlation of asset classes to assess whether
a client’s asset allocations are appropriate, and rebalance the portfolio if necessary. We regularly interview
managers and visit their operations to ensure that they remain the most appropriate vehicle for our client’s
investments. Strategic allocation decisions, rebalancing, and re-evaluating managers are all part of the ongoing
monitoring process.
Performance Reporting
We provide performance reporting on a quarterly basis. Each client will receive a report containing its own
performance measures allowing the client to review its plan and its investment managers’ performance versus the
established benchmark, while monitoring cash flows and other financial indicators. The report includes a review of
the economy, financial markets, and our investment strategy. We also organize quarterly conference calls/meetings
to give a client a better understanding by hearing from the people who are making the asset allocation and
investment manager decisions.
Multi-Asset Class Asset Management – Risk Although the investment strategies we employ do not involve significant or unusual risk beyond that of the
general markets for international and domestic equities, fixed income, publicly traded real estate, and other
investments we recommend, investors need to recognize that investing in securities involves a risk of loss that an
investor should be prepared to bear. In order to manage the risks inherent in these markets, we seek to diversify
portfolios by blending equity, fixed income, and cash based securities, in a manner that is designed to meet the
client’s risk tolerance, with the objective of reducing the risk of long term losses. Past performance is not a guarantee
of future returns.
Investing in cash, fixed income, and equity funds through separate account managers, mutual funds or ETFs
involves risk. Each asset class has its own idiosyncratic risk and return characteristics. In modeling portfolios for
our clients, we assess the individual characteristics of asset classes, from a historic and forward looking point of
view, to optimize the best blend given the client’s investment objectives and tolerance for risk.
Consulting Engagements – Analysis Strategy and Risk
For multi-asset class consulting engagements where we do not have discretion, the methods and analysis
generally are similar to those for discretionary accounts as described above. However, determining asset allocation,
setting an appropriate asset mix and manager selection are the responsibilities of the client, and not us. We generally
make recommendations and report the results of reviews at quarterly client meetings and follow client direction
with regard to the selection of managers and re-balancing accounts. As directed by the client, managers may include
those that are not approved for our discretionary accounts. In cases where a client directs assets to a manager that
is not approved, the level of ongoing diligence we perform may be limited and clients acknowledge this in writing.
Risk for these accounts is similar to risk for discretionary multi-asset class accounts.
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An investment advisor must disclose material facts about any legal or disciplinary event that is material to
a client’s evaluation of our advisory business or the integrity of our management. We do not have any disclosure
items of this nature.
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Our wholly-owned subsidiary, PFM Fund Distributors, Inc. (PFMFD), is registered as a broker-dealer under
the Securities Exchange Act of 1934. Its sole activities are to serve as exclusive distributor to the registered
investment companies and local government investment pools (Pooled Funds) for which we serve as investment
adviser and/or administrator. Marty Margolis, Debra Goodnight and Daniel Hess, management of our company, are
registered principals of PFMFD.
If our client invests in a Pooled Fund, we disclose this relationship to the client, through the Form ADV
Part 2A and the offering statement for the Pooled Fund. In addition, where Pooled Funds are employed as part of
our investment strategy, our investment advisory agreement with the client provides that if we invest client assets
in a Pooled Fund, either we will not take these assets into account for purposes of calculating our fees under the
client’s investment advisory agreement, or we will credit investment advisory fee we earn on the client’s Pooled
Fund investment against investment advisory fees due us related to the client’s separately managed account that
holds assets in the Pooled Fund.
We serve as administrator and investment adviser to PFM Funds, a diversified, open-end management
registered investment company offering money market funds to governmental entities and other institutional
investors. Additionally, we also serve as investment adviser to the MMST and the MMST Funds. We may enter
into arrangements with a third party to compensate it for service it provides to us in our role as administrator to
PFM Funds, or PFMFD’s role as distributor to PFM Funds and the MMST. Such compensation payable to the third
party is paid out of the fee we receive from the Pooled Fund. We also serve as administrator and/or investment
adviser to the following local government investment pools:
California Asset Management Trust (CAMP);
Colorado Statewide Investment Pool (CSIP);
Florida Education Investment Trust Fund (FEITF);
Illinois Trust;
Massachusetts Development Finance Agency Short-Term Asset Reserve Fund (Mass STAR);
Michigan Liquid Asset Fund Plus (MILAF+);
Minnesota Association of Governments Investing for Counties (MAGIC);
Minnesota School District Liquid Asset Fund Plus (MSDLAF+);
Missouri Securities Investment Program (MOSIP);
Nebraska Liquid Asset Fund (NLAF);
New Hampshire Public Deposit Investment Pool (NH PDIP)
New Jersey Asset & Rebate Management Program (NJ/ARM);
Pennsylvania Local Government Investment Trust (PLGIT);
Pennsylvania OPEB Trust (adviser and distributor only);
TexasTERM Local Government Investment Pool (TexasTERM);
Virginia State Non-Arbitrage Program (SNAP); and
Wyoming Government Investment Fund (WGIF).
PFMFD serves as distributor to all of these pools except for WGIF.
We have no arrangements with other investment advisers for direct or indirect compensation for
recommending those advisors to our clients. As a matter of policy and practice, we do not accept any fees,
commissions or other forms of compensation from any underlying money managers or other professionals affiliated
with our client’s account.
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Under Rule 204A-1 of the Investment Advisers Act of 1940, our employees are subject to our Code of
Ethics (Code). Compliance with the Code is a condition of employment for all of our employees.
This Code sets out general ethical standards applicable to our employees. Employees are expected to
maintain the highest ethical standards, embody a business culture that supports actions based on what is right rather
than expediency, deal fairly with clients and one another, protect confidential information and seek guidance about
ethical questions. More specifically with respect to advisory activities, the Code requires that whenever our
personnel act in a fiduciary capacity, we will endeavor to put the client’s interest ahead of the firm’s. We will
disclose actual and potential meaningful conflicts of interest. We will manage actual conflicts in accordance with
applicable regulatory and legal standards. If applicable regulatory and legal standards do not permit management
of a conflict, we will seek to avoid the conflict. We will not engage in fraudulent, deceptive or manipulative conduct
with respect to clients. We will act with appropriate care, skill and diligence.
Our employees are required to know when we are acting as a fiduciary with respect to the work they are
doing. If we are acting as a fiduciary, they are expected to comply with all fiduciary standards which apply to us in
performing their duties. In addition, they must also put the client’s interest ahead of their own personal interest. An
employee’s fiduciary duty is a personal obligation. While advisory personnel may rely upon subordinates to perform
many tasks that are part of their responsibilities, they are personally responsible for fiduciary obligations even if
carried out through subordinates.
In general, the Code expresses our recognition of our responsibilities to the public, clients and professional
associates. Our Code also contains various reporting, disclosure and approval requirements regarding employees'
personal securities transactions. The Code requires that our employees whom we deem to be "Access Persons" must
report all personal securities transactions, including transactions in mutual funds advised by us, to our Chief
Compliance Officer, or to the person he designates. Additionally, certain designated Access Persons are required to
pre-clear personal securities transactions. We prohibit our Access Persons from participating in initial public
offerings unless our Chief Compliance Officer gives his approval. We also prohibit our employees from purchasing
any municipal securities within 60 days of their issue date, if our affiliates PFM, Inc. or PFMFA served as municipal
advisor for the bond issue.
You can receive a copy of our Code by contacting us at 213 Market Street, Harrisburg, PA 17101, by calling
717-231-6200 or by emailing pfmamrequest@pfm.com.
On infrequent occasions, our employees may invest in securities that coincidentally we also recommend
for purchase or sale in our client accounts. The securities we recommend for purchase and sale within our fixed-
income and multi-asset class portfolios are of the type which the Securities and Exchange Commission has expressly
recognized as presenting little opportunity for the type of improper trading which compliance with the Code of
Ethics reporting requirements is designed to uncover. Further, our employees are subject to our Code of Ethics
described above, and because our personnel are acting in a fiduciary capacity, we require our employees to put the
client’s interests ahead of their individual interests or that of the firm with respect to the purchase and sale of
securities.
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We generally exercise brokerage discretion as follows: typically, our clients allow us to choose the broker
or dealer to execute the trades. In these situations, we deal with brokers and dealers whom we determine to be major
market makers for the types of securities purchased or sold. As a matter of policy, we do not recommend, request
or require a client to direct us to execute transactions through a specified broker-dealer. If a client provides us with
an approved list of brokers and dealers, we place all orders for the purchase or sale of securities for the client's
account with those brokers or dealers and this may limit our ability to achieve the most favorable price or execution.
Under these circumstances, the client and the broker or dealer determine the commission rates.
The factors that we may consider in selecting or recommending a particular broker or dealer include: the
execution, clearance and settlement capabilities of the firm; our knowledge of negotiated commission rates currently
available and other current transaction costs; the nature of the portfolio transaction; the size of the transaction; the
desired timing of the trade; the activity existing and expected in the market for the particular transaction;
confidentiality; the availability of research and research related services provided through such firms (as discussed
below); our knowledge of the financial stability of the firm; and our knowledge of actual or apparent operational
problems of the firm. Given these factors, our clients may pay transaction costs in excess of that which another firm
might have charged for effecting the same transaction.
When we select or recommend a firm that executes orders or is a party to portfolio transactions, relevant
factors taken into consideration may also include whether that firm has furnished research and research related
products and/or services. We receive a broad range of research services, including information on the economy,
industries, groups of securities and individual companies, statistical information, market data, accounting and tax
law interpretations, political developments, pricing and appraisal services, credit analysis, risk measurement
analysis, performance analysis and other information which may affect the economy and/or security prices. They
also may consist of computer databases. Currently, as a matter of policy, we do not enter into any third party or
proprietary soft dollar arrangements where a broker-dealer provides research services in exchange for an
expectation of receiving a certain dollar amount of commissions.
From time to time some of these brokers offer us market commentary and data and statistical research
reports as to factors which may influence market price movements. We believe that this information improves the
quality of our investment and trading decisions for the benefit of all of our clients. We obtain express authorization
from our clients to consider direct brokerage factors (efficiency of execution and commission) in selecting a broker
or dealer, and to consider the furnishing of statistical research and other information services by the broker or dealer.
It is possible that the use of any these particular brokerage firms may result from time to time in a less favorable
price for a particular transaction than if we canvassed a broader range of brokers. However, we believe that the
practice of taking into account the furnishing of market information is reasonable. For fixed-income securities, we
seek to minimize the effect, if any, of research on the transaction costs by seeking multiple competitive bids and
offers and involving major market makers wherever feasible, and use electronic trading platforms for a majority of
trades to facilitate market access and in an effort to minimize transaction costs.
We have no agreement, understanding or other arrangement, either internal or with brokers and/or dealers,
which would influence the allocation of securities transactions among brokers and/or dealers, and we do not utilize
soft dollar arrangements other than those activities explicitly authorized under Section 28(e) of the Securities
Exchange Act of 1934.
In the fixed-income and ETF markets, we may cause securities transactions to be executed for a client’s
account concurrently with authorizations to purchase or sell the same securities or shares for other accounts we
manage. It is our policy to aggregate the purchase or sale of securities or shares for various client accounts in order
to achieve efficiency of execution and better pricing. Each client participating in an aggregate transaction will
participate at the same price. Where we receive an allocation that is less than our order we normally allocate the
securities or shares to the participating client accounts on a pro rata basis in proportion to the size of the orders
placed for each account, to the extent that we can. We may increase or decrease the amount of securities or shares
allocated to a client if necessary due to factors including avoiding odd lots in a particular security.
With respect to ETFs, due to low trading volume or the established limit price for the trade order being
reached, there may be times when a trade order goes unfilled or only partially filled. At the close of business on
the trade date, any remaining trades that have not been filled by the broker will be terminated.
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For our fixed-income accounts, our Fixed-Income Investment Committee meets generally on a monthly
basis, or more frequently as necessary to review the overall strategic direction. This investment committee consists
of portfolio managers, senior research staff and our chief investment officer.
Shorter-term tactical approaches are presented routinely through a report and analysis prepared and
distributed by a sector specialist and may be discussed at a meeting. These reports highlight interest rate trends and
the relative value of different sectors and maturity structures in the market. Ad-hoc strategy discussions take place
regularly, or after any significant market moving event, such as sudden changes in financial market conditions,
general economic conditions, credit ratings downgrades, and/or the movement of a particular portfolio security
through a price support or resistance level.
Our fixed-income portfolio managers and traders are assigned specific accounts and review client portfolios
on a daily basis. As part of daily practices, portfolio managers and traders discuss market developments, overall
strategies, and the potential impact of pending economic announcements. During these sessions, portfolio managers
review portfolios, upcoming maturities, and any expected large transactions.
The Stable Value Investment Committee also meets monthly, or more frequently as necessary. The stable
value portfolio managers and research analysts monitor client positions on a daily basis. They discuss daily cash
positions, changes in issuers’ credit conditions, anticipated cash flow, economic conditions, potential liquidity needs
and anticipated upcoming placements.
For our multi-asset class accounts, our Multi-Asset Class Investment Committee meets generally on a
monthly basis, or more frequently as necessary to review the overall strategic direction. This investment committee
consists of portfolio managers, senior research staff and our chief investment officer.
We monitor the performance of multi-asset class accounts, including our Managed Accounts Program
(MAP), on at least a quarterly basis to determine whether the underlying investments selected are performing in
line with expectations and are meeting the needs of the individual client. We provide our multi-asset class clients a
quarterly analysis of the performance of the underlying funds in which the client's assets are invested and of any
reallocation of assets among these underlying funds. At least annually, we will consult with the client to determine
whether there are reasons to revise the client's target investment strategy.
Changes in our Capital Market Assumptions, our outlook for asset class valuation, sudden changes in
financial market conditions, and general economic conditions may trigger a review of our multi-asset class accounts.
Accounts are reviewed by a principal or a portfolio manager in consultation with one of our principals. Normally,
we sequence account reviews in a manner that provides for first review of the accounts that have the greatest
potential exposure to the effects of the event which triggers the review.
We furnish monthly account summaries to each fixed-income portfolio client with assets under continuous
management. The summaries include details of all transactions and holdings at the end of the period. We also
provide account summaries on a daily basis on the Internet. We may also provide an investment advice
memorandum upon advising and/or completing an order for a buy or sell of securities. Pursuant to our investment
advisory agreements, we may also provide quarterly performance and economic reviews for some clients.
The custodian of our multi-asset class portfolio clients, including our MAP clients, provides each client
with a monthly statement of account detailing the client's month-end balances and any transactions which occurred
during the month. We review such statements monthly to determine whether transactions executed by the custodian
are in agreement with any instructions which we or the client provided. In addition, we provide monthly written
statements and quarterly performance reports.
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From time to time, we may enter into arrangements under which we agree to engage a third party to solicit
or refer to us potential new investment advisory clients. Under these arrangements, we enter into a written
agreement with the third party that describes the third party’s activities on our behalf and the amount we agree to
pay the third party. The agreement also contains the third party’s undertaking to act in manner consistent with our
instructions and with the provisions of the Investment Advisers Act of 1940, and to provide the referral with a copy
of our Form ADV, Part 2A and Part 2B. If the referral subsequently enters into an investment advisory agreement
with us, we pay the solicitor a percentage of our investment advisory fee, which fee arrangement is disclosed to the
prospect by the solicitor prior to any contact or meeting with the prospect.
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We offer discretionary advisory services with respect to a client’s investable assets. When a client gives us
investment discretion, we then have the authority to determine, without obtaining their specific approval, (1) overall
asset allocation, (2) the manager or sub-adviser to be utilized for the portfolio, (3) the specific securities to be bought
and sold, (4) the amount of securities to be bought and sold including overall asset allocation and (5) the broker or
dealer through which the securities are bought or sold. These decisions are subject to limitations of law and any
other restrictions in the contract with our client, or in our client’s investment policies. Many of our clients have their
own investment policies, which usually contain restrictions on the types and credit quality of investments. We agree
contractually to follow those guidelines. In addition, many of our clients are subject to state investment statutes,
which we comply with as well. Our clients typically grant us discretionary authority in the investment advisory
agreement which we enter into with them.
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We provide to certain of our clients discretionary investment advice on securities which are mutual funds.
These mutual funds send us proxies, which we vote on behalf of these discretionary clients if they have given us
the authorization to vote them. We also occasionally receive consent requests. Generally, we arrange for the
portfolio manager overseeing the client’s investments to be responsible for making all proxy-voting decisions. We
seek to vote proxy proposals, consents or resolutions in a manner that serves the best interests of our clients. When
reviewing whether a proposed action would be in our client’s best interests, we take into account the following
factors:
The impact on the valuation of securities;
The anticipated costs and benefits associated with the proposal;
An increase or decrease in costs, particularly management fees, of investment in the securities;
The effect on liquidity; and
Customary industry and business practices.
In reviewing proxy issues of the type described below, we will apply the following general principles:
With respect to an election of directors, we will typically vote in favor of the management-proposed
slate of directors, unless there is a proxy contest for seats on the board of a portfolio fund or other
important reasons for withholding votes for directors. We may abstain if there is insufficient
information about the nominees disclosed in the proxy statement.
Similarly, we will also generally support management’s recommendation for the appointment of
auditors, unless there are reasons for us to question the independence or performance of the
nominees.
We will vote in accordance with management’s recommendations on issues that are technical and
administrative in nature, such as changes to increase the number of directors or to adopt term limits.
However, we review and vote on a case-by-case basis any non-routine proposals which are likely
to affect the structure and operation of the portfolio company. Examples of these types of proposals
include any limitations on shareholder rights, or those which have a material economic effect on
the company.
We will generally vote in favor of proposals that give shareholders a greater vote in the affairs of
the company and oppose any measure that seeks to limit those rights.
We also support proposals promoting transparency and accountability within a company to ensure
that the directors fulfill their obligations to shareholders.
We review proposals that result in an increase of compensation to investment advisors and other
service providers of portfolio mutual funds on a case-by-case basis, with particular emphasis on
the relative performance of the fund.
We also review proposals relating to executive compensation plans to ensure that the long-term
interests of management and shareholders are properly aligned.
We generally oppose proposals to give shareholders the right to vote on executive compensation.
These policies are not exhaustive due to the variety of proxy voting issues that we may be required to
consider.
With the exception of a client’s shareholdings in the Pooled Funds, a conflict of interest between us, and a
client whose investments are managed by us, is unlikely. We are the investment advisor to the Pooled Funds. We
either receive no investment advisory fee from a client for managing client assets which we invest in the Pooled
Funds, or we credit to the client any investment advisory fee we receive from the Pooled Funds investment. In
regard to the voting of securities in the Pooled Funds for which we are the investment advisor (or where it would
appear that we have an interest), we apply the following principles:
If the proposal relates to the matters in which the outcome does not directly affect us, we will follow
our general voting policies.
If the proxy proposal relates to a transaction which directly affects us, or otherwise requires a case-
by-case determination by us under our voting policies, we will seek the advice either of the
managers of the client or of a qualified, independent third party, and we will submit the proxy
statement to them. We will then follow the decision of our client’s management or the
recommendation of the third party in voting the proxy.
We maintain records relating to all proxy voting for five years. We will provide information to any client
about how we voted proxies for securities in the client’s account. Our Proxy Voting Policy is available upon request
by contacting us at 213 Market Street, Harrisburg, PA 17101, by calling 717-231-6200 or by emailing
pfmamrequest@pfm.com.
Under certain of our engagements, we do not assume the responsibility for voting proxies on client
securities. The clients make arrangements to receive proxies from their custodian. In the event that we receive a
proxy and we do not have authority to vote on it, we forward it to our client. Clients may contact the portfolio
manager for their account if they have questions about a particular solicitation.
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We are not aware of any financial condition that is reasonably likely to impair our ability to carry out our
commitments and responsibilities under our client contracts.
PFM Asset Management LLC 213 Market Street Harrisburg, PA 17101-2141 717-231-6200 phone 717-233-6073 fax www.pfm.com 3/29/2019 FORM ADV PART 2 APPENDIX 1 WRAP FEE PROGRAM BROCHURE This wrap fee program brochure provides information about the qualifications and business practices of PFM Asset Management LLC. If you have any questions about the contents of this brochure, please contact us at pfmamrequest@pfm.com. The information in this brochure has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. Additional information about PFM Asset Management LLC is also available on the SEC’s website at www.adviserinfo.sec.gov. The searchable IARD/CRD number for PFM Asset Management LLC is 122141. PFM Asset Management LLC is a Registered Investment Adviser. Registration with the United States Securities and Exchange Commission or any state securities authority does not imply a certain level of skill or training. Table of Contents Services, Fees and Compensation .................................................................................................................. 1
Account Requirements and Types of Clients ................................................................................................. 4
Portfolio Manager Selection and Evaluation ..................................................................................................4
Client Information Provided to Portfolio Managers ...................................................................................…5
Client Contact with Portfolio Managers .........................................................................................................5
Additional Information ...................................................................................................................................5
Services, Fees and Compensation Form ADV Part 2A, Appendix 1, Item 4 INTRODUCTION
PFM Asset Management LLC (PFMAM), a Delaware limited liability company, sponsors a wrap fee
program called the Managed Accounts Program (the Program) under which investment advice, custody services,
and other administrative services are provided to you for an all-inclusive wrap fee (Wrap Fee). We are no longer
marketing or offering the Program to new clients.
The Program offers you access to a variety of investment managers through mutual funds or other
investment vehicles (Portfolio Managers) suitable for implementing an investment strategy. We manage your
account (Account) on a discretionary basis and select the Portfolio Managers with which your account will be
invested and in what amounts.
U.S. Bank National Association (the Custodian) provides custody of securities and cash balances, and
certain record keeping, reporting and administrative services to and/or on behalf of you, which may include
execution, clearance and settlement of securities transactions, and benefit payment services for retirement plans.
PROGRAM SERVICES
The following describes the Program and the services offered to you if you participate in the Program. Each
participant in the Program is responsible only for the performance of its Program-related duties and not for those of
any other participant.
1. Selecting a Portfolio Manager
We have selected certain Portfolio Managers for inclusion in the Program. Before including them in the
Program, we screen the Portfolio Managers based on a variety of criteria, utilizing third-party resources, information
provided by the Portfolio Managers and our own information and analysis. Once we select Portfolio Managers for
the Program, we monitor them using the same criteria. We may terminate a Portfolio Manager from the Program in
our discretion if the Portfolio Manager’s investment performance fails to meet our expectations or if we identify a
material change in the Portfolio Manager’s investment style or capabilities.
We may add additional Portfolio Managers, which may include Portfolio Managers with different fees
and/or different strategies (including multi-discipline strategies), to the Program at any time.
You will have a separate Account and Account number for each plan or fund.
We furnish you with materials relating to the Program, including Part 2 of our Form ADV. The Form ADV
describes the investment advisory services we offer and other related information.
2. Your Portfolio Manager and the Management of Your Account We buy and sell and trade for your risk the assets in your Account in accordance with the terms stated in
your Investment Advisory Agreement with us. We have the discretion to manage your Account (
i.e., to act on your
behalf without prior consultation with you). You may, however, impose reasonable restrictions on our management
of your Account. For example, you may specify certain asset classes or sub-asset classes that you do not want us to
acquire for your Account. We will determine whether any restriction you request is reasonable. You are not be
permitted to engage directly in transactions for your Account under the Program.
The Custodian will execute and clear trades and act as the custodian for your Account. You will have access
to your Account and receive information about your Account as set forth below.
If you wish to transfer any of your assets out of the Program, you should contact us or the Custodian and
we or the Custodian will advise you about how to transfer assets.
Under the Program, except as otherwise specifically waived or agreed to by you, you retain the following
rights to the same extent as if you held the assets in an account outside of the Program: (a) the right to withdraw
securities or cash from your Account; (b) the right to vote, or delegate the authority to vote, the securities in your
Account; (c) the right to be provided in a timely manner with written trade confirmations for all securities
transactions in your Account, and all other documents required by law to be given to security holders; and (d) the
right to proceed directly against an issuer of any security in your Account and not be obligated to join any other
person or client of the Program as a condition of bringing a proceeding.
You should promptly notify us in writing if you want to revise your answers in the Portfolio Planning
Survey you previously completed with us, if you want to impose any reasonable restrictions, or modify any existing
restrictions, on the management of your Account, or if there have otherwise been any material changes in your Fund
Information. At least annually, we will contact you to change or confirm existing investment objectives. We will
have personnel who are knowledgeable about your Account reasonably available to you on an ongoing basis for
consultation.
3. Account Information and Reporting
The Custodian furnishes you (or someone you designate) with a monthly Account statement showing
holdings and all securities transactions in your Account and a quarterly Account review. In the Custody Agreement,
you have authorized the Custodian to send us duplicate copies of trade confirmations, Account statements and
reviews and any other applicable Account information. At a web site operated by the Custodian, you are be able to
see trading history, positions and executions of trades online as of the prior business day.
We calculate the rate of return performance for your Account using data provided by the Custodian, and
we report such performance to you quarterly. We calculate your Account’s rate of return performance in a manner
consistent with the Global Investment Performance Standards (GIPS) of the CFA Institute, unless otherwise
indicated. In reviewing, compiling and analyzing Portfolio Manager performance as it relates to the Program, we,
among other things, compare the data collected on the Portfolio Manager to indices and benchmarks. We will
periodically review the performance of the mutual funds or other investment vehicles in which your assets are
invested. We will prepare and distribute Program level performance reports which address the performance of these
funds.
PROGRAM FEE For the services provided by the Portfolio Managers, the Custodian and us, you are charged a Wrap Fee in
accordance with the schedule below. The fee is negotiable.
Annual Rate First $5,000,000 of assets 1.00%
Next $5,000,000 0.85%
Next $10,000,000 0.75%
Assets in excess of $20,000,000 0.60%
This schedule applies only to Accounts having assets of $1,000,000 or more; if and for so long as such
assets are less than $1,000,000, the Wrap Fees will be at an annual rate of 1.25%, unless a minimum flat advisory
fee is negotiated, instead of a wrap fee at this increased annual rate.
The Wrap Fee will be charged on the net market value of assets in your Account as determined by the
Custodian on the last day of the month. The Wrap Fee will compensate us and cover the costs of Portfolio Managers,
custody and certain other Program costs.
The underlying investment options of the Program will generally be mutual funds. The mutual fund
Portfolio Managers will be compensated by the respective mutual funds at fees that are included in the mutual
funds’ expense ratio. Where offered and available to the Program, we will select institutionally priced share classes
of funds. Clients will not be separately billed for these services. It is anticipated that the weighted average expense
ratio for all mutual funds in the Program will be in the range of 0.25% to 0.50%.
Dependent on the aggregate client asset level, the portion of the total fees retained by us will generally
range from 0.65% to 0.15%. We are compensated for investment consulting, selection and monitoring of investment
options, Program administration and marketing, client services, and other related duties.
From our portion of the Wrap Fee we pay the fee of the Custodian for custody and benefit payment services.
These services are provided by U.S. Bank National Association. Fees for these services will range between 0.05%
and 0.25%.
Typically we charge the Wrap Fee on a calendar month basis, in arrears. The portion of the Wrap Fee paid
to Portfolio Managers of mutual funds is in the form of the expense ratios and is deducted automatically from the
assets invested in the funds. We receive the remainder of the Wrap Fee from which we pay the Custodian pursuant
to our agreements with the Custodian.
The Investment Advisory Agreement between you and us authorizes us to deduct, unless otherwise
instructed by you, the monthly Wrap Fee (and all other charges payable under the Program) from the assets in your
Account, retain a portion as our fee and distribute the fees that are due to the Portfolio Managers (for vehicles other
than mutual funds) and the Custodian. You authorize us, if necessary, to liquidate assets in your Account in order
to make cash available for such payments. We will select the assets to be liquidated.
The monthly Wrap Fee payments is charged on the Account’s net market value as determined by the
Custodian on the last business day of the month. For each addition to, or withdrawal from, your Account, the Wrap
Fee payment will be adjusted in the next month. We may modify the Wrap Fee Schedule upon 30 days’ prior written
notice to you.
A. Your Portfolio Managers will receive compensation as a result of your participation in the Program. This
compensation comes in the form of the mutual fund’s expense ratio and is not billed separately by the Program. The
amount of your Portfolio Managers’ compensation may be more or less than the amount your Portfolio Managers
would receive if you paid separately for investment advice, brokerage and other services similar to the services
provided to you under the Program.
B. The Wrap Fee charged to you in the Program may be more or less than the cost of separately purchasing
services similar to the Program’s services, as in an arrangement involving a separate fee for investment advice and
a separate fee for custody services. Generally, the factors that bear upon the relative costs of an investment program
include the assets managed, the costs of the specific services provided and the amount of trading activity in an
account.
C. The Wrap Fee includes all fees and charges by the Portfolio Managers, the Custodian and us for services
in connection with the Program (including investment management fees payable to Portfolio Managers, brokerage
commissions, quarterly and annual report charges, and custodial charges, if applicable) except for charges, if any,
related to redemption of mutual fund shares that are paid to the fund and not incorporated into its expense ratio,
certain fees, such as front-end or back-end sales charges, or certain charges associated with securities transactions
imposed by regulatory authorities. The Wrap Fee does not include fees related to actuarial, accounting, trustee,
auditing or legal services required by your Account or any other charges imposed by law.
Account Requirements and Types of Clients Form ADV Part 2A, Appendix 1, Item 5 You may add assets to or withdraw assets from your Account. However, if a withdrawal at any time causes
your Account to have a value of less than $100,000, we may close your Account at our discretion.
Portfolio Manager Selection and Evaluation Form ADV Part 2A, Appendix 1, Item 6 A. We have selected certain Portfolio Managers for inclusion in the Program. Before including them in the Program, we screen the Portfolio Managers based on a variety of criteria, utilizing third-party resources, information
provided by the Portfolio Managers and our own information and analysis. Once we have selected Portfolio
Managers for the Program, we monitor them using the same criteria. We may terminate a Portfolio Manager from
the Program in our discretion if the Portfolio Manager’s investment performance fails to meet our expectations or
if we identify a material change in the Portfolio Manager’s investment style or capabilities.
We may add additional Portfolio Managers, which may include Portfolio Managers with different fees
and/or different strategies (including multi-discipline strategies), to the Program at any time.
1. We calculate the rate of return performance for your Account using data provided by the Custodian, and
we report the performance to you quarterly. We will periodically review the performance of the mutual funds or
other investment vehicles in which your assets are invested. We will prepare and distribute Program level
performance reports which address the performance of these funds. We calculate your Account’s rate of return
performance in a manner consistent with the Global Investment Performance Standards (GIPS) of the CFA Institute,
unless otherwise indicated.
2.
2. In reviewing, compiling and analyzing Portfolio Manager performance as it relates to the Program, we, among other things, compare the data collected on the Portfolio Manager to indices and benchmarks.
B. We do not act as a Portfolio Manager for the Program. C. Advisory Business Part2A Items 4.B.: Not applicable.
Part2A Items 4.C.: Not applicable.
Part2A Items 4.D.: Not applicable.
Performance-Based Fees and Side-By-Side Management Part2A Item 6: Not applicable.
Methods of Analysis, Investment Strategies and Risk of Loss Part2A Item 8.A.: Not applicable. Voting Client Securities Part 2A Item17: Not applicable.
Client Information Provided to Portfolio Managers Form ADV Part 2A, Appendix 1, Item 7 We do not communicate information about you to the managers of the mutual funds utilized by the Program. Unless you request otherwise, the Custodian will provide the mutual fund managers with your name and address.
Client Contact with Portfolio Managers Form ADV Part 2A, Appendix 1, Item 8 For investments in the Program made in mutual funds, the investment policies of the respective fund are as
described in its prospectus and other documents that govern the fund’s activities. There is no restriction on your
ability to contact Portfolio Managers; however, the Portfolio Managers of mutual funds are not able to change their
fundamental investment strategies and must manage the mutual fund portfolio according to its own policies.
Additional Information Form ADV Part 2A, Appendix 1, Item 9 A. Disciplinary Information 1. Not applicable. 2. Not applicable. 3. Not applicable. 4. Not applicable. B. 1. Not applicable. 2 (a) Not applicable.
(c) Not applicable.
(d) Not applicable.
C. 1. Not applicable. 2. Not applicable. Other Financial Industry Activities and Affiliations Part 2A Item 10: A. Our wholly-owned subsidiary, PFM Fund Distributors, Inc., is registered as a broker-dealer under the Securities Exchange Act of 1934. Its sole activities are to serve as distributor to the registered investment companies
and certain local government investment pools for which we serve as investment adviser and/or administrator.
B. Not applicable. C. 1. Our wholly-owned subsidiary, PFM Fund Distributors, Inc. (PFMFD), serves as distributor to registered investment companies and certain local government investment pools (Pooled Funds) for which we serve
as investment adviser and/or administrator. If our client invests in a Pooled Fund, we disclose this relationship to
the client, through the Form ADV Part 2A and the offering statement for the Pooled Fund. In addition, where Pooled
Funds are employed as part of our investment strategy, our investment advisory agreement with the client provides
that if we invest client assets in a Pooled Fund, we will not take these assets into account for purposes of calculating
our fees under the client’s investment advisory agreement, or we will credit investment advisory fees we earn on
the client’s Pooled Fund investment against investment advisory fees due us related to the client’s separately
managed account that holds assets in the Pooled Fund. Therefore, we do not receive any additional compensation
if we invest client assets in a Pooled Fund.
2. We serve as administrator and investment adviser to PFM Funds, a diversified, open-end
management registered investment company offering money market funds to governmental entities and other
institutional investors. Additionally, we also serve as investment adviser to the PFM Multi-Manager Series Trust,
an open-end management investment company currently comprised of a single/multiple series. Our wholly-owned
subsidiary, PFM Fund Distributors, Inc., serves as distributor for PFM Funds and PFM Multi-Manager Series Trust.
We also serve as administrator and/or investment adviser to the following local government investment pools:
California Asset Management Trust (CAMP);
Colorado Statewide Investment Pool (CSIP);
Florida Education Investment Trust Fund (FEITF);
Illinois Trust;
Massachusetts Finance Development Agency Short-Term Asset Reserve Fund (MassSTAR);
Michigan Liquid Asset Fund Plus (MILAF+);
Minnesota Association of Governments Investing for Counties (MAGIC);
Minnesota School District Liquid Asset Fund Plus (MSDLAF+);
Missouri Securities Investment Program (MOSIP);
Nebraska Liquid Asset Fund (NLAF);
New Hampshire Public Deposit Investment Pool (NH PDIP);
New Jersey Asset & Rebate Management Program (NJ/ARM);
Pennsylvania Local Government Investment Trust (PLGIT);
Pennsylvania OPEB Trust (adviser and distributor only);
TexasTERM Local Government Investment Pool (TexasTERM);
Virginia State Non-Arbitrage Program (SNAP); and
Wyoming Government Investment Fund (WGIF).
PFMFD serves as distributor to all of these pools except for WGIF.
Items 3 through 11 are not applicable.
D. We have no arrangements with other investment advisers who compensate us directly or indirectly. As a matter of policy and practice, we do not accept any fees, commissions or other forms of compensation from any
underlying money managers or other professionals affiliated with our client’s account.
E. Code of Ethics, Participation or Interest in Client Transactions and Personal Trading Form ADV Part 1, Item 11: A. Under Rule 204A-1 of the Investment Advisers Act of 1940, our employees are subject to our Code of Ethics (Code). Compliance with the Code is a condition of employment for all of our employees.
This Code sets out general ethical standards applicable to our employees. Employees are expected to
maintain the highest ethical standards, embody a business culture that supports actions based on what is right rather
than expediency, deal fairly with clients and one another, protect confidential information and seek guidance about
ethical questions.
More specifically with respect to advisory activities, the Code requires that whenever our personnel act in
a fiduciary capacity, we will endeavor to consistently put the client’s interest ahead of the firm’s. We will disclose
actual and potential meaningful conflicts of interest. We will manage actual conflicts in accordance with applicable
regulatory and legal standards. If applicable regulatory and legal standards do not permit management of a conflict,
we will seek to avoid the conflict. We will not engage in fraudulent, deceptive or manipulative conduct with respect
to clients. We will act with appropriate care, skill and diligence.
Advisory personnel are required to know when we are acting as a fiduciary with respect to the work they
are doing. If we are acting as a fiduciary, they are expected to comply with all fiduciary standards which apply to
us in performing their duties. In addition, they must also put the client’s interest ahead of their own personal interest.
An employee’s fiduciary duty is a personal obligation. While advisory personnel may rely upon subordinates to
perform many tasks that are part of their responsibilities, they are personally responsible for fiduciary obligations
even if carried out through subordinates.
In general, the Code expresses our recognition of our responsibilities to the public, clients and professional
associates. Our Code also contains various reporting, disclosure and approval requirements regarding employees'
personal securities transactions. The Code requires that our employees whom we deem are "Access Persons" must
report all personal securities transactions, including transactions in mutual funds advised by us, to our Chief
Compliance Officer, or to the person he designates. Additionally, certain designated Access Persons are required to
pre-clear personal securities transactions. We prohibit our Access Persons from participating in initial public
offerings unless our Chief Compliance Officer gives his approval. We also prohibit our employees from purchasing
any municipal securities within 60 days of their issue date, if our affiliate, PFM, served as financial advisor for the
bond issue.
You can receive a copy of our Code by contacting us at 213 Market Street, Harrisburg, PA 17101, by calling
717-231-6200 or by emailing pfmamrequest@pfm.com.
B. Our wholly-owned subsidiary, PFM Fund Distributors, Inc., serves as distributor to registered investment companies and certain local government investment pools (Pooled Funds) for which we serve as investment adviser
and/or administrator. If our client invests in a Pooled Fund, we disclose this relationship to the client, through the
Form ADV Part 2A and the Pooled Fund’s offering document. In addition, our investment advisory agreement with
the client provides that if we invest the client’s assets in a Pooled Fund, we will not take these assets into account
for purposes of calculating our fees under the agreement.
C. On infrequent occasions, our employees may invest in securities that coincidentally we also recommend for purchase or sale in our client accounts. The fixed-income and multi-asset class management securities we
recommend for purchase and sale are of the type which the Securities and Exchange Commission has expressly
recognized as presenting little opportunity for the type of improper trading which compliance with the Code of
Ethics reporting requirements is designed to uncover. Further, our employees are subject to our Code of Ethics
described in Item 11.A. above, and because our personnel are acting in a fiduciary capacity, we endeavor to put the
client’s interests ahead of the firm’s with respect to the purchase and sale of securities.
D. On infrequent occasions, our personnel may buy or sell a security for their own accounts, which coincidentally is being purchased or sold by other of our personnel for client accounts. The fixed-income and multi-
asset class management securities we recommend for purchase and sale are of the type which the Securities and
Exchange Commission has expressly recognized as presenting little opportunity for the type of improper trading
which compliance with the Code of Ethics reporting requirements is designed to uncover. As noted above, whenever
our personnel act in a fiduciary capacity, we will endeavor to consistently put the client’s interest ahead of the
firm’s.
Advisory personnel are required to know when we are acting as a fiduciary with respect to the work they
are doing. If they are acting as a fiduciary, they are expected to comply with all fiduciary standards applicable to
the firm in performing their duties.
Review of Accounts Form ADV Part 1, Item 13: A. Investment committees consisting of senior portfolio managers, senior research staff and our chief investment officer meet approximately monthly to assess economic and market conditions and set overall direction
for portfolio managers.
We monitor the performance of multi-asset class accounts, including our Program Accounts, on at least a
quarterly basis to determine whether the underlying investments selected are performing in line with expectations
and are meeting the needs of the individual client. We provide our multi-asset class clients a quarterly analysis of
the performance of the underlying funds in which the client's assets are invested and of any reallocation of assets
among these underlying funds. At least annually, we will consult with the client to determine whether there are
reasons to revise the client's target investment strategy. The custodian of our multi-asset class portfolio clients,
including our Program clients, provides each client with a monthly statement of account detailing the client's month-
end balances and any transactions which occurred during the month.
We review such statements monthly to determine whether transactions executed by the custodian are in
agreement with any instructions which we or the client provided.
B. Sudden changes in financial market conditions, general economic conditions, and/or the movement of a particular portfolio security through a price support or resistance level may trigger a review. Accounts are reviewed
by a principal or a portfolio manager in consultation with one of our principals. Normally, we sequence account
reviews in a manner that provides for first review of the accounts that have the greatest potential exposure to the
effects of the event which triggers the review.
C. For Program clients, the Custodian provides monthly written statements of accounts and we provide quarterly written performance reports.
Client Referrals and Other Compensation Form ADV Part 1, Item 14: A. Not applicable. B. Not applicable. Financial Information Form ADV Part 1, Item 18: A. 1. Not applicable. 2. Not applicable. 3. Not applicable. B. Not applicable. C. Not applicable.
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