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HomeMy WebLinkAbout11-18-2014 C12 Investment AdvisorCity of San Luis Obispo, Council Agenda Report, Meeting Date, Item Number Council Agenda Report 11/18/2014 C12 FROM: Wayne Padilla, Finance and Information Technology Director SUBJECT: APPROVE AGREEMENT WITH PUBLIC FINANCIAL MANAGEMENT (PFM) FOR INVESTMENT ADVISOR SERVICES RECOMMENDATION: 1. Approve the agreement between the City and PFM for Investment Advisor Services for a 5 year term. 2. Approve waiver of insurance deductible and self-insured retention. DISCUSSION On September 2, 2014, the City Council approved the release of an Investment Advisor Services Request for Proposal document. In response to that document, four proposals were received by the deadline. A sub-committee from the Investment Oversight Committee met on October 16th to review each of the proposals and assist the Treasurer in reaching a recommendation on which firm’s proposal should be accepted. The sub-committee consisted of the City Treasurer Wayne Padilla, Assistant City Manager Michael Codron, Public Member Steve Barasch and Financial Operations Manager Vilma Warner. Proposals were received from Vellum, HGK, Public Financial Management (PFM), and Chandler Asset Management. Based on the sub-committee’s review of the four proposals and the recommendations provided through the firm’s references, the unanimous choice of the group was that Public Financial Management should be selected as the City’s next investment advisor. This recommendation was made based on the documented experience of the PFM staff who would be assigned to the City’s account both as direct and indirect support to the investment management process, their extensive experience managing investments for California cities and other public agencies, and the fact that they operate their own trading desk and have substantial resources at their disposal to provide investment advice to municipal agencies. The recommendation of the sub-committee was presented to the full Investment Oversight Committee which concurred. A check of the references provided by PFM shows that they are responsive to their clients’ needs by providing timely market trend information and assist their clients by reviewing and updating their investment policies as needed. In addition to the recently completed reference check, as the former City Treasurer for the City of Modesto, Director Padilla worked with PFM in managing the city’s investment portfolio of nearly $300 million. Mr. Padilla found PFM to be responsive and very knowledgeable about the investment market when recommending reinvestment options. C12 - 1 Report on Responses Received for RFP for Investment Advisor Services Page 2 The City’s insurance requirements state that all insurance deductibles and self-insured retention amounts must be declared by the consultant. PFM noted that there are several deductibles and self-insured retentions that apply to their insurance coverage as noted below. • Automobile $250 comprehensive, $500 collision • Professional Liability (E&O) $1,000,000 • Financial Institution Bond $75,000 Staff is recommending that the deductibles and self-insured retentions should be waived based on the Finance Director’s review of PFM’s most recent audited financial statements which demonstrated a strong financial position and ability to pay, coupled with the firm’s policy of identifying as a debt obligation any claims that require the payment of a deductible. The financial statements showed that no such claims exist. In order to provide the City with the opportunity to continually survey PFM’s financial standing, a requirement has been added to the contract with PFM that allows the City to review PFM’s financial standing on a periodic basis to confirm that they are able to financially support the deductibles and self-insured retention amounts. This request is consistent with actions taken in other, similar situations where the consultant/contractor had a strong financial standing making them capable of paying any claims subject to the deductible or self-insured retention from available current resources. FISCAL IMPACT The cost of providing investment advisor services is typically determined by a fee charged for a range of dollars invested. The following table shows the amounts proposed by each firm for a portfolio totaling up to $100 million. The City currently has approximately $45.3 million in investments that are managed by Chandler Asset Management. Comparison of Proposed Pricing Chandler PFM Vellum HGK 1st $25 million $25,000 $25,000 $100,000 $37,500 2nd $25 million $20,000 $20,000 $100,000 $25,000 Next $25 million $17,500 $17,500 $87,500 $20,000 Next $25 million $17,500 $17,500 $75,000 $20,000 Annual fee for $100 million investment $80,000 $80,000 $362,500 $102,500 ALTERNATIVE Do not approve the use of PFM and recommend the approval of an agreement with Chandler Asset Management. This is an allowable option based on Chandler’s acceptable performance and fee structure which is the same as that proposed by PFM. ATTACHMENTS C12 - 2 Report on Responses Received for RFP for Investment Advisor Services Page 3 1. Attachment 1- Investment Advisor Agreement.docx COUNCIL READING FILE Proposals and the RFP document are in the Council Reading File T:\Council Agenda Reports\2014\2014-11-18\Investment Advisor CAR\Invest Advisor CAR.docx C12 - 3 Attachment 1 THIS AGREEMENT is made and entered into in the City of San Luis Obispo on _________________________, 2014, by and between the CITY OF SAN LUIS OBISPO, a municipal corporation, hereinafter referred to as City, and PFM Asset Management LLC, hereinafter referred to as Investment Advisor. W I T N E S S E T H: WHEREAS, on September 3, 2014, City requested proposals for financial advisor services per Specification No. 91337. WHEREAS, pursuant to said request, Investment Advisor submitted a proposal, which was accepted by City for said services. NOW THEREFORE, in consideration of their mutual promises, obligations, and covenants hereinafter contained, the parties hereto agree as follows: 1. TERM. The term of this Agreement shall be for a period of 5 years, from the date this Agreement is made and entered, as first written above. This Agreement may be extended by mutual written concurrence of both parties for an additional period of up to two (2) years. 2. INCORPORATION BY REFERENCE. City Request for Proposal Document for Specification No. 91337 and Investment Advisor’s proposal dated _________________, are hereby incorporated in and made a part of this Agreement. 3. CITY'S OBLIGATIONS. For providing services as specified in this Agreement, City will pay and Investment Advisor shall receive therefore compensation as set forth in Exhibit A of this Agreement. 4. INVESTMENT ADVISOR'S OBLIGATIONS. For and in consideration of the payments and agreements hereinbefore mentioned to be made and performed by City, Investment Advisor agrees with City to do everything required by this Agreement. 5. Deductibles and Self-Insured Retentions. Any deductibles or self-insured retentions must be declared to and approved by the City. City has elected to waive the requirement to require the insurer to reduce or eliminate such deductibles and self-insured retentions. The City further waives the requirement to require Contractor to procure a bond guaranteeing payment of losses and related investigations, claim administration and defense expenses. In exchange for said waiver, City requires Contractor to provide for the periodic review of its audited financial statements within 10 business days of their publication. C12 - 4 Attachment 1 6. AMENDMENTS. Any amendment, modification, or variation from the terms of this Agreement shall be in writing and shall be effective only upon approval by the City Manager. 7. COMPLETE AGREEMENT. This written Agreement, including all writings specifically incorporated herein by reference, shall constitute the complete agreement between the parties hereto. No oral agreement, understanding, or representation not reduced to writing and specifically incorporated herein shall be of any force or effect, nor shall any such oral agreement, understanding, or representation be binding upon the parties hereto. 8. NOTICE. All written notices to the parties hereto shall be sent by United States mail, postage prepaid by registered or certified mail addressed as follows: City City Clerk City of San Luis Obispo 990 Palm Street San Luis Obispo, CA 93401 Investment Advisor [ ] [ ] [ ] [ ] 9. AUTHORITY TO EXECUTE AGREEMENT. Both City and Investment Advisor do covenant that each individual executing this agreement on behalf of each party is a person duly authorized and empowered to execute Agreements for such party. 10. INVESTMENT ADVISOR PROVISIONS. (a) Services of Investment Advisor. City hereby engages Investment Advisor to serve as Investment Advisor under the terms of this Agreement with respect to the funds described in this Agreement and such other funds as City may from time to time assign by written notice to Investment Advisor (collectively the "Managed Funds"), and Investment Advisor accepts such appointment. In connection therewith, Investment Advisor will provide investment research and supervision of the Managed Funds investments and conduct a continuous program of investment, evaluation and, when appropriate, sale and reinvestment of the Managed Funds assets. Investment Advisor shall continuously monitor investment opportunities and evaluate investments of the Managed Funds. Investment Advisor shall furnish City with statistical information and reports with respect to investments of the Managed Funds. Investment Advisor shall place all orders for the purchase, sale, loan or exchange of portfolio securities for City's account with brokers or dealers recommended by Investment Advisor and/or City, and to that end Investment Advisor is authorized as agent of City to give instructions to the custodian designated by City (the “Custodian’) as to deliveries of securities and payments of cash for the account of City. In connection with the selection of such brokers and dealers and the placing of such orders, Investment Advisor is directed to seek for City the most favorable execution and price, C12 - 5 Attachment 1 the determination of which may take into account, subject to any applicable laws, rules and regulations, whether statistical, research and other information or services have been or will be furnished to Investment Advisor by such brokers and dealers. The Custodian shall have custody of cash, assets and securities of City. Investment Advisor shall not take possession of or act as custodian for the cash, securities or other assets of City and shall have no responsibility in connection therewith. Authorized investments shall include only those investments which are currently authorized by the state investment statutes, and City’s investment policy, and as supplemented by such other written instructions as may from time to time be provided by City to Investment Advisor. Investment Advisor shall be entitled to rely upon City's written advice with respect to anticipated drawdowns of Managed Funds. Investment Advisor will observe the instructions of City with respect to broker/dealers who are approved to execute transactions involving the Managed Funds and in the absence of such instructions will engage broker/dealers which Investment Advisor reasonably believes to be reputable, qualified and financially sound. (b) Pool Compensation. Assets invested by Investment Advisor under the terms of this Agreement may from time to time be invested in a money market mutual fund mnaged by Investment Advisor or local government investment pool managed by Investment Advisor (either, a “Pool”) or in individual securities. Average daily net assets subject to the fees described in this Agreement shall not take into account any funds invested in the Pool. Expenses of the Pool, including compensation for Investment Advisor and the Pool custodian, are described in the relevant prospectus or information statement and are paid from the Pool. (c) Other Compensation. If and to the extent that City shall request Investment Advisor to render services other than those to be rendered by Investment Advisor under this Agreement, such additional services shall be compensated separately on terms to be agreed upon between Investment Advisor and City. (d) Expenses. Investment Advisor shall furnish at its own expense all necessary administrative services, office space, equipment, clerical personnel, telephone and other communication facilities, investment advisory facilities, and executive and supervisory personnel for managing the Managed Funds. Except as expressly provided otherwise herein, City shall pay all of its own expenses including, without limitation, taxes, commissions, fees and expenses of City's independent auditors and legal counsel, if any, brokerage and other expenses connected with the execution of portfolio security transactions, insurance premiums, and fees and expenses of the Custodian. (e) Registered Advisor; Duty of Care. Investment Advisor hereby represents it is a registered investment advisor under Investment Advisors Act of 1940. Investment Advisor shall immediately notify City if at any time during the term of this Agreement it is not so registered or if its registration is suspended. Investment Advisor agrees to perform its duties and responsibilities under this Agreement with reasonable care. The federal securities laws impose liabilities under certain circumstances on persons who act in good faith. Nothing herein shall in any way constitute a waiver or limitation of any rights which City may have under any federal securities laws. City hereby C12 - 6 Attachment 1 authorizes Investment Advisor to sign I.R.S. Form W-9 on behalf of City and to deliver such form to broker-dealers or others from time to time as required in connection with securities transactions pursuant to this Agreement. (f) Investment Advisor’s Other Clients. City understands that Investment Advisor performs investment advisory services for various other clients which may include investment companies, commingled trust funds and/or individual portfolios. City agrees that Investment Advisor, in the exercise of its professional judgment, may give advice or take action with respect to any of its other clients which may differ from advice given or the timing or nature of action taken with respect to the Managed Funds. Investment Advisor shall not have any obligation to purchase, sell or exchange any security for the Managed Funds solely by reason of the fact that Investment Advisor, its principals, affiliates, or employees may purchase, sell or exchange such security for the account of any other client or for itself or its own accounts. (g) Force Majeure. Investment Advisor shall have no liability for any losses arising out of the delays in performing or inability to perform the services which it renders under this Agreement which result from events beyond its control, including interruption of the business activities of Investment Advisor or other financial institutions due to acts of God, acts of governmental authority, acts of war, terrorism, civil insurrection, riots, labor difficulties, or any action or inaction of any carrier or utility, or mechanical or other malfunction. (h) Disciplinary Actions. Investment Advisor shall promptly give notice to City if Investment Advisor shall have been found to have violated any state or federal securities law or regulation in any final and unappealable judgment in any criminal action or civil suit in any state or federal court or in any disciplinary proceeding before the Securities and Exchange Commission or any other agency or department of the United States, any registered securities exchange, FINRA, or any regulatory authority of any State based upon the performance of services as an investment advisor. (i) Independent Contractor. Investment Advisor, its employees, officers and representatives, shall not be deemed to be employees, agents (except as to the purchases or sale of securities described in subparagraph (a) above), partners, servants, and/or joint ventures of City by virtue of this Agreement or any actions or services rendered under this Agreement. (j) Books. Investment Advisor shall maintain records of all transactions in the Managed Funds. Investment Advisor shall provide City with a monthly statement showing deposits, withdrawals, purchases and sales (or maturities) of investments, earnings received, and the value of assets held on the last business day of the month. The statement shall be in the format and manner that is mutually agreed upon by Investment Advisor and City. (k) Brochure and Brochure Supplement. Investment Advisor warrants that it has delivered to City prior to the execution of this Agreement Investment Advisor's current Securities and Exchange Commission Form C12 - 7 Attachment 1 ADV, Part 2A (brochure) and Part 2B (brochure supplement). City acknowledges receipt of such brochure and brochure supplement prior to the execution of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed the day and year first above written. ATTEST: CITY OF SAN LUIS OBISPO, A Municipal Corporation By: City Clerk City Administrative Officer APPROVED AS TO FORM: Investment Advisor By: City Attorney C12 - 8 EXHIBIT A Assets Under Management Annual Fee First $25 million 10 basis points (0.10%) Next $25 million 8 basis points (0.08%) Next $50 million 7 basis points (0.07%) Assets over $100 million 6 basis points (0.06%) The minimum fee is $15,000 per year. PFMAM will fix the fee schedule for three years. After the third year, there is the option to negotiate a fee adjustment, in line with CPI. The fee schedule covers all normal costs. There will be no additional expenses for PFMAM’s normal service. C12 - 9 Page intentionally left blank. C12 - 10