HomeMy WebLinkAboutItem 1j: Continue Using Cutwater Asset Management for Investment Management Services ti I
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\4 � 4j'll Of STAFF REPORT
Administrative Services Department
DATE: March 1, 2011
TO: Mayor and City Council
FROM: Hue C. Quach, Administrative Services Director e,
Shannon Huang, Financial Service Manager /City Treasurer
SUBJECT: Authorize City staff to continue using Cutwater Asset Management for
investment management services for the period of April 2011 to March
2012
Recommendation: Approve
SUMMARY
In April of 2007, the City entered into a contract with the Cutwater (formerly MBIA) Asset
Management Group 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 Cutwater'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 Cutwater is working up
to the City's expectations. It is recommended that the City continue using Cutwater's
services for the period of April 2011 to March 2012.
BACKGROUND
The City entered into an agreement with the Cutwater Asset Management to provide the
City with 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.
Cutwater Asset Management was originally established in 1991 and is an independent
operating subsidiary of MBIA, Inc. with oversight of its own capital base, compensation
structure and management team. It has approximately $45 billion in assets under
management and 120 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.
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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 February 16, 2011, Mayor Peter Amundson, 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 January 2011, the City's investment portfolio totaled $92.4
million had a overall rate of return of 1.74% as two -year and five -year Treasury Note
were earning 0.61% and 1.99% respectively, and Cutwater managed assets had a total
rate of return equal to 2.20% after management fees. Additionally, the City's overall
investment portfolio had outperformed its benchmark, twelve month moving average of
two -year treasury yield, for 1` to 1.5% every month during 2011.
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 period of April 2011 to March
2012.
APPROVED: .De-k.-a tC
Donald Penman, City Manager
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