OUR NON-INVESTMENT COMPANY ADVISORY BUSINESS
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Investments’ website (https://www.pgim.com/investments/sirg). The reports are also provided
to affiliated and unaffiliated third-party sponsors of managed account wrap platforms and mutual
fund non-discretionary wrap programs, described in more detail below.
SIRG’s manager evaluation philosophy is based on the proposition that skill exists among active
managers. Over time and through experience, SIRG’s approach to the evaluation of managers
has identified major attributes or characteristics that are associated with competitive, ongoing
investment performance. Identified attributes are both quantitative and qualitative and are
gauged using a variety of tools and techniques.
The following is a description of SIRG’s manager evaluation process.
Organizational Infrastructure
SIRG believes that organizational infrastructure as it pertains to investment
management is: 1) an assessment of whether the structure of the organization and
investment team is optimally designed to develop quality asset forecasts, and
2) an evaluation of the mechanics of how a security name makes its way into the final
portfolio and whether its sizing accurately reflects the manager’s conviction in that
name. SIRG typically evaluates the structure and design of the firm to determine if it is
optimal given the investment strategy and seeks to identify any impediments that
would prevent or delay ideas from making their way into the final portfolio.
Investment Professionals
SIRG observes that organizations who focus on investment talent and talent
management generally have an edge over their peers in generating investment
performance. Assessing the talent within an investment organization involves
quantitative measures as well as subjective judgments. One measure is the experience
of the investment team. A premium is placed on significant relevant investment
experience, in the asset class and the style implemented.
Experience alone, however, is not an indication of talent. Judgments around team
members’ passion, critical thinking, and intellectual diversity provide insights into
their ability to add value. Further, understanding how a firm approaches the hiring
process, trains and motivates its employees, manages underperformers, and promotes
an entrepreneurial spirit, can provide further indications of an ability to develop effective
high-performance teams. SIRG typically evaluates an investment team’s career histories,
both in terms of experience level and quality of previous positions, the firm’s approach
to hiring/firing investment professionals, the key attributes that the manager looks for
in an individual if they are considering adding people to the investment team, and the
characteristics of professionals that have left the firm.
EVALUATION OF MANAGER CANDIDATES
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Asset Forecasting
SIRG believes asset prices reflect three broad tenets: fundamental valuation, investor
behavior, and macroeconomic positioning (top-down views). In essence, an assessment
of a manager’s asset forecasting methodology measures its ability to create a
sustainable, competitive advantage through either a unique source of information,
additional resources devoted to research, and/or processing information differently
from other investors. Managers possessing these traits could be able to identify assets
the market has mispriced, providing them with an alpha-generating advantage.
Portfolio Construction and Risk Management
Managers use the process of portfolio construction to design portfolios that seek to
optimize risk adjusted performance and ensure that holdings are deliberate, scaled, and
consistent with investment themes. SIRG looks to determine the risk consciousness of
the manager, how the portfolio was constructed, and how the manager's views are
reflected within the portfolio.
Performance Analysis
SIRG seeks to develop a multi-dimensional view of performance results to draw
appropriate conclusions regarding the skills brought to bear by the portfolio
management team and process governing a given portfolio. SIRG examines
performance, utilizing a variety of metrics and analytical tools. SIRG typically measures
and analyzes: returns, risk, efficiency, consistency, symmetry, and attribution.
Performance measurement is contextual, that is, relative to like managers and
benchmarks. Performance measurement is, in all instances possible, based on rolling
observations rather than a single period “snap shot”.
The advice SIRG provides regarding principles of performance measurement is based
upon the theory that investors should: (i) measure the performance of their investments
by looking at whether their total performance is on track to meet their specific
objectives; and (ii) measure the performance of their managers versus comparable
strategies and benchmarks. In doing so, SIRG evaluates managers regularly to assess
whether they continue to meet expectations. Quarterly quantitative analysis typically
covers performance, risk-adjusted performance, consistency and investment style.
SIRG also monitors for and responds to events that have impacted past performance or
could impact future performance. Events considered potentially detrimental to historical
or future performance include, but are not limited to: significant organizational changes,
portfolio manager changes, or changes to the investment management team. SIRG also
monitors for historical underperformance and seeks to identify the causes of such
underperformance (for example, poor security selection or style drift). SIRG will
implement an increased level of scrutiny on managers evidencing such factors and seek
to further understand the potential impact on portfolio performance.
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When practicable, SIRG conducts field office visits at a manager’s location (“Field Visits”)
from time to time that could offer an additional perspective from which to evaluate a
firm. Field Visits are designed to, among other things, to verify information received
through questionnaires and other sources.
Upon completion of its manager evaluation, SIRG typically presents a report of its findings and
recommendations to one or more of the internal and/or external business/investment
committees that utilize SIRG’s services. Each committee reviews SIRG’s research and
recommendations, explores any questions or concerns that arise, and then determines whether
to accept the addition, termination, reaffirmation, or suspension of a manager with respect to a
particular product or program.
PGIM Investments’ non-investment company clients are comprised of unaffiliated wrap program
sponsors; the investment committees of Prudential's variable annuity, variable life, and retirement
businesses; and the general account of The Prudential Insurance Company of America (“PICA”).
An unaffiliated financial institution has engaged PGIM Investments to provide non-discretionary
manager and fund research services directly to one of the unaffiliated financial institution’s
clients, Pruco Securities LLC (“Pruco”), an affiliate of PGIM Investments. These services are
prepared using the various methodologies described in Item 4 of this Brochure. The information
provided by SIRG to the unaffiliated financial institution is used by Pruco to implement and
administer the following wrap fee program:
The Pruco Unified Managed Account (“UMA”) Platform is designed to give investors the
ability to select mutual funds, Separately Managed Accounts (“SMAs”), model portfolios,
and ETFs covering a wide range of asset classes. Pruco typically offers no-load classes of
PGIM Investments’ proprietary mutual funds and certain no-load and load-waived classes
of unaffiliated mutual funds, as well as SMAs, model portfolios, and non-proprietary ETFs.
SIRG provides quantitative research (such as peer relative performance and manager tenure)
that is used by the unaffiliated financial institution and the institution’s client, Pruco, to
supplement the factors Pruco considers when adding and removing investment options
from the Pruco UMA investment platform. Although SIRG’s research plays a role in Pruco’s
review process, Pruco (not SIRG) ultimately decides the investment options on the Pruco UMA
investment platform.
The unaffiliated financial institution is responsible for its contractual arrangements with its own
clients. PGIM Investments does not contract with the unaffiliated financial institution’s clients.
Nothing in the arrangement between PGIM Investments and the unaffiliated financial institution
is designed to create or imply any contractual, services or advisory relationship between PGIM
Investments and any of the institution’s clients.
DESCRIPTION OF CLIENTS
SERVICES PROVIDED TO AN UNAFFILIATED FINANCIAL INSTITUTION REGARDING WRAP FEE
PROGRAMS
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PGIM Investments, through SIRG, provides manager research and recommendations to various
investment committees (each, a “Committee”) of our affiliated insurance companies, including
PICA.
The services SIRG provides are prepared using the various methodologies described in Item 4 of
this Brochure. SIRG provides these services on a non-discretionary basis and as inputs for the
respective Committee’s consideration. Each Committee (and not SIRG) makes a final
determination on which manager or strategy to utilize in the particular product or service. The
products or services overseen by the respective Committees include:
Individual and/or group variable life insurance or variable annuity contracts;
Services to retirement plans;
Third-party variable insurance trusts (“VITs”) offered through group variable
annuities sold to retirement plans and individual retirement accounts (“IRAs”);
and
IRA platforms.
PGIM Investments, through SIRG, also provides the following services regarding VITs to the Group
Life Insurance and Individual Annuities Committees: (i) monitoring fund performance, style, and
market cap consistency, and (ii) monitoring firm stability and composition of the applicable VIT
portfolio management team.
PGIM Model Portfolios:
PGIM Investments, through SIRG, creates, maintains and makes available
PGIM Model
Portfolios to Third-Party Advisors. In creating the PGIM Model Portfolios, PGIM Investments
works with certain affiliates, including PGIM Quantitative Solutions LLC (“PQS”), which may
provide asset allocation input and performance tracking services to PGIM Investments. The
PGIM Model Portfolios are made available on Third-Party Platforms for Third-Party Advisors to
use, at their discretion, with such Third-Party Advisors’ own clients.
The PGIM Model Portfolios are designed and balanced such that the risk profiles approximate
those of the respective benchmarks chosen, or the desired outcomes, for the PGIM Model
Portfolio. PQS serves as a resource to SIRG with respect to setting the allocations to each asset
class. The SIRG team members responsible for PGIM Model Portfolios will incorporate
research, quantitative analysis, and capital market assumptions from PQS in the foundation
and ongoing management of PGIM Model Portfolios. For additional information about PQS’s
asset allocation and portfolio construction services and their associated risks, please review PQS’s
SERVICES PROVIDED TO THE INVESTMENT COMMITTEES OF AFFILIATED INSURANCE COMPANIES
REGARDING MANAGER SELECTION
SERVICES MADE AVAILABLE ON THIRD-PARTY PLATFORMS AND PROVIDED TO THIRD-PARTY
ADVISORS RELATED TO MODEL PORTFOLIOS
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Form ADV Part 2 Brochure.
SIRG is responsible for the selection of and weightings to each of the underlying mutual funds
and ETFs. Each PGIM Model Portfolio is built using specific investment strategies and each is
designed consistent with a specific risk tolerance level or desired outcome. SIRG could primarily
use PGIM Funds and PGIM ETFs in the PGIM Model Portfolios unless there is no PGIM Fund or
PGIM ETF consistent with the desired asset allocation or investment strategy for the PGIM
Model Portfolio or in SIRG’s discretion a different mutual fund or ETF is preferred. As a result,
PGIM Model Portfolios typically include PGIM Funds and PGIM ETFs notwithstanding the fact
that there could be a similar fund with lower costs or better performance. The PGIM Model
Portfolios will also include an allocation to cash. The PGIM Model Portfolios will seek to
incorporate and follow any model specific constraint(s) imposed upon them by the Third-Party
Platform(s) with respect to investment limitations including, fund/ETF usage or allocation
constraints.
SIRG selects mutual funds and ETFs for inclusion in the PGIM Model Portfolios using a risk-based
approach, selecting mutual funds and ETFs that reflect the intended investment exposure and
forward performance expectations. As noted above, SIRG will generally select PGIM Funds and
PGIM ETFs when constructing a PGIM Model Portfolio. In so doing, SIRG will generally
recommend the PGIM Fund/ETF with the lowest expense ratio available to investors on the
Third-Party Platform, in addition to non-proprietary money market and index funds and ETFs
as determined appropriate by SIRG. In connection with each fund selection within a PGIM
Model Portfolio, SIRG analyzes and reviews, among other things, the investment performance,
return expectations, investment style and structure, fees, and risk exposure of the mutual funds
and ETFs. SIRG could also use fundamental analysis to monitor/assess each fund based on market
outlook and fund management fundamentals seeking to optimize the selection of each mutual
fund and ETF for inclusion in a PGIM Model Portfolio.
SIRG maintains the PGIM Model Portfolios in alignment with established allocations, which may
be adjusted from time to time. SIRG will adjust the underlying mutual funds and ETFs in the
PGIM Model Portfolios in accordance with PGIM Investments’ policies and processes.
Once constructed, the PGIM Model Portfolios are provided to an unaffiliated Third-Party
Platform Provider, which in turn makes the PGIM Model Portfolios available to Third-Party
Advisors on Third-Party Platform(s). The Third-Party Advisors access the PGIM Model Portfolios
through the Third-Party Platform and use them to provide investment advice to their clients.
Certain affiliates, including Pruco, are Third-Party Advisors for certain Model Portfolio
platforms.
In offering the PGIM Model Portfolios, neither PGIM Investments nor its investment advisory
affiliates are providing advisory services to, or managing assets for or on behalf of, any Third-
Party Advisors or any Third-Party Advisor’s clients. PGIM Investments and its investment
advisory affiliates also do not manage any assets through the Third-Party Platform(s) except
that PGIM Investments and its investment advisory affiliates could serve as the investment
adviser or, in the case of PQS, the investment subadviser to the underlying mutual funds or
ETFs in the PGIM Model Portfolios. PGIM Investments and its investment advisory affiliates do
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not have trading authority over any client account of any Third-Party Advisor.
The PGIM Model Portfolios are not tailored to meet the needs of the Third-Party Advisor’s
clients. Each Third-Party Advisor, and not PGIM Investments or its investment advisory
affiliates, is responsible for determining whether the applicable PGIM Model Portfolio is
suitable and appropriate for such Third-Party Advisor’s clients. Accordingly, the PGIM Model
Portfolios do not take into account broader investment objectives, risk tolerance, or financial
circumstances that could be relevant to any Third-Party Advisor’s clients and each Third-Party
Advisor is responsible for ensuring that its clients’ current investment objectives, risk tolerance,
and financial circumstances are considered before such client invests based on a PGIM Model
Portfolio or rebalances per changes in a PGIM Model Portfolio.
Evaluations of Other Model Portfolio Providers:
PGIM Investments, through SIRG, also performs research services on model portfolios created
and maintained by an unaffiliated asset manager for an affiliate. In providing these research
services to the affiliate, PGIM Investments is not providing advisory services to, or managing
assets for or on behalf of, any of the affiliate’s clients.
PGIM Investments, through SIRG, has entered into a research arrangement with PGIM Custom Harvest
LLC (“PGIM Custom Harvest”), an affiliate of PGIM Investments, which is a SEC-registered investment
adviser that creates and manages specialized portfolios that invest in ETFs to maximize after-tax returns
using capital loss harvesting strategies. The research arrangement allows PGIM Custom Harvest to
supplement its own research and analysis by leveraging SIRG’s expertise with respect to the
identification, selection, and monitoring of ETF providers. Under the research arrangement, SIRG
provides PGIM Custom Harvest with information and research concerning ETFs identified by PGIM
Custom Harvest that could be considered and used by PGIM Custom Harvest in selecting ETFs used in
managing client accounts. PGIM Custom Harvest retains sole and exclusive responsibility for its
management of its client accounts, including all decisions regarding the purchase, holding, and sale of
ETF shares by PGIM Custom Harvest in connection with such management.
RESEARCH SERVICES PROVIDED TO OTHER AFFILIATES
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PGIM Investments receives the following sources of fees for our non-investment company advisory
business:
We receive fees and/or cost reimbursements for the research and recommendation
services provided to our affiliated insurance companies.
For the recommendations relating to the PGIM Model Portfolios, we receive a
management fee for managing the assets of the underlying PGIM mutual funds and PGIM
ETFs, if any, that are included in a PGIM Model Portfolio, which is disclosed in the
prospectus and SAI of each PGIM Fund and PGIM ETF. For the services PQS provides to
PGIM Investments related to the PGIM Model Portfolios, PQS receives a fee from PGIM
Investments out of its revenues. Additionally, to the extent PQS is a subadviser to any
mutual fund or ETF included in a PGIM Model Portfolio, PQS receives a subadvisory fee
for the services it provides on behalf of the mutual fund/ETF. PGIM Investments does not
directly charge a fee to any Third-Party Advisors or the clients of any Third-Party Advisors
for accessing the PGIM Model Portfolios on the Third-Party Platform(s). PGIM
Investments also pays installation, maintenance, technology, or other fees to the
Platform Provider(s) for making PGIM Model Portfolios available on the Third-Party
Platform. Fees are calculated and billed in accordance with the agreement in place
between PGIM Investments and the Platform Provider.
Each underlying PGIM mutual fund and PGIM ETF, if any, included in a PGIM Model
Portfolio incurs advisory, administrative, and/or custodial fees, as well as other fees and
expenses that it pays out of its own assets. As a result, such fees and expenses are borne
by the clients of the Third-Party Advisor as shareholders of the applicable mutual fund or
ETF. More information about the fees and expenses associated with underlying funds and
ETFs included in a PGIM Model Portfolio is found in such fund’s or ETF’s prospectus and
SAI. For the Model Portfolio platform(s) in which Pruco Securities is a Third-Party Advisor,
Pruco Securities has agreed to waive its platform fee for its clients for which a PGIM
Model Portfolio is used in an amount equal to or greater than the management fees of
the PGIM Funds and/or PGIM ETFs included in the PGIM Model Portfolio(s) used for such
client. Clients of Pruco Securities should refer to Pruco’s Form ADV for more detailed
information on Pruco Securities’ fees and any waiver of such fees for its clients invested
in PGIM Model Portfolios. Clients of other Third-Party Advisors should also refer to the
Third-Party Advisor’s Form ADV for information on additional fees charged by the Third-
Party Advisor.
Conflicts of interest or potential conflicts of interest commonly refer to activities or relationships
in which the interests of PGIM Investments or its affiliates compete with the interests of PGIM
Investments’ clients. Like other investment advisers, PGIM Investments is subject to various