Loading...
HomeMy WebLinkAboutItem 1g: Authorize Staff to Use Cutwater (formerly MBIA) Asset Management Group for Investment Management ServicesPage 1 of 2 STAFF RFJPORT Administrative Services Department DATE: May 4, 2010 TO: Mayor and City Council FROM: Hue C. Quach, Administrative Services Director Shannon Huang, Financial Service Manager /City Tr asurer SUBJECT: Authorize City staff to continue using Cutwater (formerly MBIA) Asset Management for investment management services for the coming year. Recommendation: Approve SUMMARY In April of 2007, the City entered into a contract with the MBIA Asset Management Group, which recently changed its name to Cutwater Asset Management, for investment management services with respect to a portion of the City's portfolio. At that time, the Council directed that an annual review of MBIA's performance be conducted, and that the matter be brought back to the City Council to decide whether to continue using those services or pursue other alternatives. Staff has recently completed the required annual review, and believes that MBIA is working up to the City's expectations. It is recommended that the City continue using MBIA's services for the coming year. BACKGROUND The City entered into an agreement with the MBIA's Asset Management Group to provide the City with investment advisory services in April 2007. The purpose of this agreement was to utilize MBIA's investment expertise to enhance the overall rate of return on the City's portfolio. MBIA was selected from among five proposals. The firm was established in 1991 and is a member of the MBIA family of companies. In February 2010, the asset management unit of MBIA was restructured into Cutwater Asset Management. It is still an independent operating subsidiary of MBIA, Inc. with oversight of its own capital base, compensation structure and management team. It has approximately $42 billion in assets under management and 122 employees. Cutwater manages $50.0 million of the City's investment portfolio. The basic concept was to have Cutwater oversee assets available for longer term investment, while City staff retains control over assets requiring greater liquidity. The agreement with Cutwater does not impose a specific term. Staff and at least one Council member, however, were to conduct an annual review of the firm's performance. After each review, a formal recommendation was to be 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. DISCUSSION On April 1, 2010 former Mayor John Wuo, City Manager Don Penman, Administrative Services Director Hue Quach, and Financial Services Manager /City Treasurer Shannon Huang met with Cutwater representatives to review the past year's performance. As of the month ended February 2010, the City's investment portfolio totaled $90 million had a overall rate of return of 2.40% as two -year and five -year Treasury Note were earning 0.86% and 2.36% respectively. And Cutwater managed assets had a total rate of return equal to 3.02% after management fees. Staff has not encountered any problems 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 cost will be about $41,000. This amount, however, should be more than offset by higher interest earnings. Funding for the agreement has been provided for in the adopted budget. RECOMMENDATION It is recommended that the City Council: Authorize City staff to continue using Cutwater Asset Management for investment management services for the coming year. APPROVED: J) o*. ?c-+M•+ -•-.� Donald Penman, City Manager Page 2 of 2