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
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