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HomeMy WebLinkAbout04 - CC-4 - Renew One Year Contract for Managed Inve - 4/19/2016CITY COUNCIL AGENDA REPORT MEETING DATE: APRIL 19, 2016 ITEM NUMBER: CC -4 SUBJECT: RENEW ONE YEAR CONTRACT FOR MANAGED INVESTMENT SERVICES DATE: MARCH 23, 2016 FROM: FINANCE DEPARTMENT PRESENTATION BY: COLLEEN O'DONOGHUE, ASSISTANT FINANCE DIRECTOR FOR FURTHER INFORMATION CONTACT: COLLEEN O'DONOGHUE (714) 754-5219 RECOMMENDATION 1. Renew one (1) year term of the Professional Services Agreement (PSA) with Chandler Asset Management, Inc. (Chandler) for investment management services in an amount up to $50,000. 2. Authorize City Chief Executive Officer to execute the Amendment Number One to the Professional Services Agreement with Chandler Asset Management, Inc. BACKGROUND On July 12, 2013, the City entered into a Professional Services Agreement with Chandler Asset Management, Inc. to provide investment management services for a period of three (3) years with the option to renew the contract in one (1) year period, for a minimum of two (2) periods. The initial contract period of three years will end July 11, 2016. Staff recommends the renewal of the contract year to period ending on July 12, 2017. ANOI YSIS Since July, 2013, Chandler Asset Management, Inc. has been working with City staff to diversify the City's investment portfolio and improve the portfolio's duration while staying in line with the City's investment policy. Prior to Chandler's involvement, the City's portfolio comprised primarily of Local Agency Investment Fund (LAIF) and Federal Agency securities, majority of which were callable notes. Chandler works with City staff over time to broaden the portfolio's overall asset allocation and maturity distribution, which includes allocation to US Treasury notes and corporate bonds with less focus on Federal Agency securities. The table below summarizes how the City's portfolio has transitioned under Chandler's management. Asset Allocation As of 07/31/2013 As of 02/29/2016 US Treasury Notes 0.00% 16.55% Federal Agency Securities 50.85% 35.25% LAIF 43.20% 34.84% Corporate Notes 0.00% 13.31% Commercial Paper 5.90% 0.00% Money Market 0.05% 0.04% 1 Maturity Distribution As of 07/31/2013 As of 02/29/2016 0.00 — 1.00 year 49.1% 49.1% 1.00 — 2.00 years 2.4% 14.0% 2.00 — 3.00 years 7.1% 11.9% 3.00 — 4.00 years 4.9% 10.6% 4.00 — 5.00 years 36.0% 14.4% Additionally, Chandler assists City staff with the annual review of the City's investment policy and updates staff regularly on economic conditions. Staff are pleased with their performance. ALTERNATIVES CONSIDERED At this time, there are no alternatives proposed. To change the contractor for investment management services, the City would need to issue a Request for Proposal (RFP). However, given the timeline on issuing an RFP, evaluating the proposals and bringing a professional service contract to City Council for approval, staff does not believe there would be enough time before the current contract ends in July 2016. FISCAL REVIEW Fees for investment management services remain the same as the original contract and are structured into the tier format below: Assets Under Management First $25 million Next $25 million Assets in excess of $50 million Annual Asset Management Fee 0.10 of 1 % (10 basis points) 0.08 of 1% (8 basis points) 0.07 of 1% (7 basis points) Over the past few years, the City has increased its investment holdings gradually. Currently, the City has approximately $54 million in assets under Chandler's management. Chandler's fees range around $4,000 per month. Staff anticipates Chandler's annual fees to total about $50,000 in the 1St renewal year. LEGAL REVIEW The Amendment Number One to the 2013 Professional Services Agreement has been reviewed and approved as to form. Public Contract Code, Section 22175 et seq., does not apply to this agreement because the contract value is below the threshold set forth in Public Contract Code, Section 22178(a). 1► RECOMMENDATION Staff is recommending the execution of this Amendment Number One to the Professional Services Agreement with Chandler Asset Management Inc., renewing the existing PSA for one year in an amount up to $50,000 annually. The firm has excellent qualifications, reputation and experience. In addition, the firm has a solid understanding of the scope of the project; and has extensive investment management experience with other municipal governments. STEPHEN DUNIVENT THOMAS DUARTE Interim Finance Director City Attorney Attachments: 1. Professional Services Agreement (July 12, 2013) 2. Amendment Number One to the Professional Services Chandler Asset Management, Inc. (July 12, 2016) reement with 3 ATTACHMENT 1 July 16, 2013 t CITY OF COSTA MESA CALIFORNIA 9262&1200 P.O, BOX 1200 FROM THE OFFICE OF THE CITY CLERK Nicole Dragoo Chandler Asset Management 6225 Lusk Boulevard San Diego, CA 92121 Dear Ms. Dragoo: RE: Investment Management Agreement For your records is an original of the agreement between Chandler Asset Management and the City of Costa Mesa, Sincerely,, Brenda Green�J City Clerk Enclosure (1) 77 FAIR DRIVE PHONE: (714)754-5225 • TDD: (714)7545244 • wwVv.costamesaca.9ov CHANDLER ASSET MANAGEMENT INVESTMENT MANAGEMENT AGREEMENT (Institutional Client, Non -ERISA) The City of Costa Mesa (Client) hereby retains Chandler Asset Management, Inc. (Chandler) as Investment Adviser on the terms and conditions set forth herein. 1. Term, The term of this Agreement shall commence upon the execution of this Agreement and shall continue for a period of three years with the option to extend for two (2) one (1) year terms, unless the Agreement is terminated effective upon receipt of notice of termination in writing delivered by the terminating party. 2. Fees. Client shall compensate Chandler monthly an amount calculated on the average market value of Client's portfolio, including accrued interest, in accordance with the following schedule: Assets Under Management First $25 million Next $25 million Assets in excess of $50 million Annual Investment Management Fee 10 bps (or 0.10 of 1%) 8 bps (or 0.08 of 11/o) 7 bps (or 0.07 of 1%) The fees expressed above do not include any custody fees that may be charged by Client's bank or other third party custodian. Fees shall be prorated to the effective date of termination on the basis of actual days elapsed, and any unearned portion of prepaid fees shall be refunded. Client is not required to pay any start-up or closing fees; there are no penalty fees. Fees shall be deducted monthly in arrears from Client's custody account. 3. Client &4yesMtgt ye. In its capacity as investment manager, Chandler shall receive all instructions, directions and other communications on Client's behalf respecting Client's account from the City Treasurer. Chandler is hereby authorized to rely and act upon all such instructions, directions and communications from such Representative or any agent of such Representative. 4. Investment Policy. In investing and reinvesting Client's assets, Chandler shall comply with Client's Investment Policy, which is attached hereto as Exhibit A. 5. A—ut_q1*_of_Q—h4Md1Ae,. Chandler is hereby granted limited discretion for a period of at least six (G) months following execution of the agreement. During such time, Chandler is required to receive approval from Representative or his/her designee, before investing and reinvesting any assets under its management in any type of security: After such time, Representative will have authority to grant Chandler, up to and including, full discretion to invest and reinvest all assets under its management in any type of security it deems appropriate, subject to the instructions given or guidelines set by Representative. CHANDLER ASSET MANAGEMENT 6, Notice& All reports and other communications required hereunder to be in writing shall be delivered in person, or sent by first-class mail postage prepaid, by overnight courier, by confirmed facsimile with original to follow or by confirmed electronic mail with proof of receipt to the addresses set forth below. )tither party to this Agreement may, by written notice given at any time, designate a different address for the receipt of reports and other communications due hereunder, Chandler Asset Management Client Representative Atm: Nicole Dragoo Bobby Young, Treasurer, City of Costa Mesa 6225 Lusk Boulevard P,O, Box 1200 San Diego, CA 92121 Costa Mesa, CA 92628.1200 7. electronic Delivery. From time to time, Chandler may be required to deliver certain documents to Client such as account information, notices and required disclosures. Client hereby consents to Chandler's use of electronic means, such as email, to make such delivery, This delivery may include notification of the availability of such document(s) on a website, and Client agrees that such notification will constitute "delivery". Client further agrees to provide Chandler with Client's email address(s) and to keep this information current at all times by promptly notifying Chandler of any change in email address(s). Client email address(s): Bobby.Young@costamesaca.gov, Colleen.O'Donoghue@costamosaea.gov 8. Prootin . Chandler will vote proxies on behalf of Client unless otherwise instructed, Chandler has adopted and implemented written policies and procedures and will provide Client with a description of the proxy voting procedures upon request, Chandler will provide information regarding how Clients' proxies were voted upon request; To request proxy policies or other information, please contact us by mail at the address provided, by calling 800-317-4747 or by emailing your request to info@cbandlerasset,com, 9. Custody of Securities and F ds. Chandler shall not have Custody or possession of the funds or securities that Client has placed under its management. Client shall appoint a custodian to take and have possession of its assets. Client recognizes the importance of comparing statements received from the appointed custodian to statements received from Chandler. Client recognizes that the fees expressed above do not include fees Client will incur for custodial services. 10. _Va1r tion. Chandler will value securities hold in portfolios managed by Chandler no less than monthly. Securities or investments in the portfolio will be valued in a manner determined in good faith by Chandler to reflect fair market value. 11. ve en Adice, Client recognizes that the ophrions, recommendations and actions of Chandler will be based on information deemed by it to be reliable, but not guaranteed to or by it. Provided that Chandler acts in good faith, Client agrees that Chandler will not in any way be liable for any error in judgment or for any act or omission, except as may otherwise be provided for under the Federal Securities laws or other applicable laws. MET ER AssEr MANAGEMENT 12. Payment of Commissions. Chandler may place buy and sell orders with or through such brokers or dealers as it may select. It is the policy and practice of Chandler to strive for the best price and execution and for commission and discounts which are competitive in relation to the value of the transaction and which comply with Section 28(e) of the Securities and Exchange Act, Nevertheless, it is understood that Chandler may pay a commission on transactions in excess of the amount another broker or dealer may charge, and that Chandler makes no warranty or representation regarding commissions paid on transactions hereunder. 13, taller Clients. It is farther understood that Chandler may be acting in a similar capacity for other institutional and individual clients, and that investments and reinvestments for Client's portfolio may differ from those made or recommended with respect to other accounts and clients even though the investment objectives may be the same or similar. Accordingly, it is agreed that Chandler will have no obligation to purchase or sell for Client's account any securities which it may purchase or sell for other clients. 14. C9nfi&nWa1 B&1a_tiW1gp. The terms and conditions of this Agreement, and all information and advice farnished by either party to the other shall be treated as confidential and shall not be disclosed to third parties except (1) as required by law, rule, or regulation, including the California Public Records Act, (ii) as requested by a regulatory authority, (iii) for disclosures by either party of information that has become public by means other than wrongful conduct by such party or its officers, employees, or other personnel, (iv) for disclosures by either party to its legal counsel, accountants, or other professional advisers, (v) as necessary for Chandler to carry out its responsibilities hereunder, or (vi) as otherwise expressly agreed by the parties. 15. No Assi . t& Amendinwits, Neither party may assign, directly or indirectly, all or pari of its rights or obligations under this Agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. This Agreement may be amended at any time by mutual agreement in writing. 16. Covernins Law. It is understood that this Agreement shall be governed by and construed under and in accordance with the laws of the State of California, 17. Seye_ratlity, Any provision of this Agreement which is prohibited or unenforceable shall be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. 18. Receipt of Brochure and Privacy Policy. Client has received the disclosure statement or "brochure" and "brochure supplement" also known as Part 2A and Part 2B of Porm ADV, required to be delivered pursuant to Rule 204-3 of the Investment Advisers Act of 1940 (Brochure). Client has received a copy of Chandler's Privacy Policy. �cHANDLER CA&ASSET MANAGWrW 19, flrlritation It is agreed that any controversy between Chandler and the Client arising out of Chandler business or this Agreement, shall be submitted to arbitration conducted under the provisions of the commercial arbitrationrales of the American Arbitration Association, Arbitration most be commenced by service upon the other party of a written demand for arbitration or, a written notice of intention to arbitrate, therein electing the arbitration tribunal, In the event the Client does not make such election within five (5) days of such demand or notice, then the Client authorizes. Chandler to do so on the Client's behalf; Judgment upon any award rendered by the arbitrators shall be final and may be entered in any court having jurisdiction thereof, This clause does not constitute a waiver of any right including the right to choose the forum, whether arbitration: or adjudication, in which to seek resolution of disputes. Client: Nance & Title: Thomas (latah, Chief Exegutive Qfficer Project Manager, M Name & 'Title: Bobby g Finanee & I T: Director Name & Title: Tom DuarteCityAttomey Chandler Asset Management, Inc„ a California Corporation IM Name & Title: Ka y Chandler, President 4 ATTACHMENT 2 AMENDMENT NUMBER ONE TO INVESTMENT MANAGEMENT AGREEMENT THIS AMENDMENT NUMBER ONE ("Amendment") is made and entered into this 12th day of July, 2016 ("Effective Date"), by and between the CITY OF COSTA MESA, a California municipal corporation ("City"), and CHANDLER ASSET MANAGEMENT, INC. a California corporation, ("Consultant"). RECITALS WHEREAS, the parties entered into an Investment Management Agreement on July 12, 2013 ("Agreement") for Consultant to provide City with investment management services; and WHEREAS, Section 1 of the Agreement provides for a three-year initial term with an option to renew the agreement for two (2) one (1) year terms; and; WHEREAS, the parties now desire to renew the term for a one-year period through July 12, 2017. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Pursuant to Section 1 of the Agreement, the term of the Agreement is renewed for a one-year period through July 12, 2017. 2. All other terms, conditions, and provisions of the Agreement shall remain valid and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by and through their respective authorized officers as of the date first written above. [Signatures appear on the following page.] 11 Amendment No. 1 — Chandler Asset Management, Inc. CITY OF COSTA MESA Chief Executive Officer Interim Finance Director CONSULTANT Signature Name and Title Taxpayer ID Number ATTEST: City Clerk APPROVED AS TO FORM: City Attorney APPROVED AS TO CONTENT: Project Manager Date: Date: Date: Date: Date: Date: 2 1 Amendment No. 1 — Chandler Asset Management, Inc.