HomeMy WebLinkAboutItem 2f - Contract for Investment Management ServicesROPER MINA
21192
DATE: June 18, 2013
TO: Mayor and City Council
STAFF REPORT
Administrative Services Department
FROM: Hue C. Quach, Administrative Services Director
Shannon Huang, Financial Services Manager /City Treasurer
SUBJECT: AUTHORIZE AND DIRECT THE CITY MANAGER TO EXECUTE A ONE
YEAR CONTRACT WITH CUTWATER ASSET MANAGEMENT FOR
INVESTMENT MANAGEMENT SERVICES IN AN AMOUNT NOT TO
EXCEED $48,000
Recommendation: Approve
SUMMARY
Cutwater Asset Management Group has managed approximately $50 million of the
City's investment portfolio since 2007. As it has met the City's expectations over the
past year, it is recommended that the City continue using Cutwater's services for the
period of July 2013 to June 2014, and increase the maximum allowable allocation for
Cutwater's managed portfolio to $60 million.
DISCUSSION
The City entered into an agreement with Cutwater Asset Management to provide
investment advisory services in April 2007. The purpose of this agreement was to utilize
Cutwater's investment expertise to enhance the overall rate of return on the City's
portfolio. Cutwater was selected from among five proposals.
The agreement with Cutwater is subject to review annually. Staff and at least one
Council Member conduct an annual review of the firm's performance. After each review,
a formal recommendation is made to the City Council for direction either to continue
services with Cutwater or to consider other alternatives. The City has the ability to
terminate the agreement for any reason by giving a written notice to Cutwater no less
than thirty (30) days prior to the requested termination date.
On May 8, 2013, Mayor Mickey Segal, City Manager Dominic Lazzaretto, Administrative
Services Director Hue Quach, and Financial Services Manager /City Treasurer Shannon
Huang met with Cutwater representatives to review the past year's performance.
Contract Renewal For Investment
Management Services
June 4, 2013
Page 2 of 3
In the meeting, the group discussed the possibility of allocating more funds to the
portfolio managed by Cutwater to maximize returns. After an evaluation of the City's
cash flow needs, it was determined that the City could increase Cutwater's managed
portfolio up to $60 million, with discretion, and still provide the liquidity portfolio
approximately $20 to 25 million for operational needs.
One of the benefits of having Cutwater as the City's portfolio managing company is their
resources to evaluate the risks and benefits associated with the investment instruments.
They are a leader in managing money for state and local governments — one of the
largest with over $29 billion in assets under management. In March 2013, the City
Council approved the City's Statement of Investment Policy that included provisions to
invest in Corporate and Municipal Bonds that would provide a higher yield. Cutwater
has a group of analysts who dedicates all of their time in monitoring corporate and
municipal bonds. With Cutwater's resources and expertise, the increase of the portfolio
size managed by Cutwater will provide additional flexibility to further diversify the
portfolio and enhance overall investment return.
As of the month of April 2013, the City's investment portfolio totaled $82.2 million,
earning an average return of 0.68 %. In comparison, the Two -Year and Five -Year
Treasury Notes were earning 0.23% and 0.71%, respectively. Cutwater managed
assets had a total rate of return equal to 0.67% after the reduction of management fees;
the liquidity portfolio managed by City staff had earned 0.57 %. Although the City's
investment earnings have been declining, largely due to overall low interest rates in the
market, the investment portfolio still has outperformed its benchmark, which is a twelve
month moving average of the Two -Year Treasury Yield.
Staff has not encountered any issues during the year working with Cutwater and
believes that the firm has adhered to all the requirements of its contract with the City.
FISCAL IMPACT
Cutwater charges fees for services based on the amount of assets under management.
It is estimated that the annual costs will be about $41,000 if Cutwater's portfolio is kept
at $50 million and approximately $48,000 if the portfolio is maximized to $60 million.
The additional $10 million in investments will only be added to Cutwater's management
portfolio if staff believes, based on recent history of returns and the status of the
investment marketplace, that the funds will generate a higher yield than City- managed
investments, even after deducting the associated fees.
Contract Renewal For Investment
Management Services
June 4, 2013
Page 3 of 3
RECOMMENDATION
It is recommended that the City Council authorize and City Manager to execute a one
year contract with Cutwater Asset Management for investment management services in
an amount not to exceed $48,000.
Approved:
Dominic Lazzar t
City Manager