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May 23, 2023
ITEM TITLE
Agreement: Approve a Consultant Services Agreement with Chandler Asset Management, Inc. to Provide Non-Discretionary Investment Management Services
Report Number: 23-0134
Location: No specific geographic location
Department: Finance
Environmental Notice: The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
Recommended Action
Adopt a resolution approving an agreement with Chandler Asset Management, Inc. to provide non - discretionary investment management services to manage the City’s investment portfolio.
SUMMARY
The City issued a Request for Proposal (RFP) for non-discretionary investment management services to manage the City’s investment portfolio. Four bidders submitted proposals. After an evaluation of the proposals, a selection committee recommended Chandler Asset Management, Inc. In this action, staff recommends approval of a three-year agreement with Chandler Asset Management, Inc. with up to two (2) one-year renewal options.
ENVIRONMENTAL REVIEW
The Director of Development Services has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines because it will not result in a physical change in the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines, the activity is not subject to CEQA.
Thus, no environmental review is required.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
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Not applicable.
DISCUSSION
The investment of City funds is guided by the California Government Code Section 53600, et seq . and the City’s Investment Policy and Guidelines (the “Policy”), last amended March 7, 2023 . The Policy is reviewed and adopted annually by the City Council and is intended to provide guidelines for prudent investment of City cash balances, and outline policies to assist in maximizing the efficiency of the City’s cash management system, while meeting the daily cash flow de mands of the City. Annually, the City Council delegates the responsibility for the investment program to the Director of Finance/Treasurer. Per the Policy, the Director of Finance/Treasurer is responsible for all investment transactions undertaken and shall establish a system of controls and written procedures to regulate activities of subordinate officials. Additionally, the Director of Finance/Treasurer may delegate day -to-day investment decision making and execution authority to an investment advisor.
The Finance Department currently manages the City’s investment portfolio of $519 million, as of March 31, 2023. The investment portfolio is managed with the objective that all investments are made under the terms and conditions of California Government Code Section 53600, et seq. and that all investments are selected in the order of safety, liquidity, and return on investments . Although the Director of Finance/Treasurer and Finance Department staff are qualified to continue to manage the City’s investment po rtfolio, the use of a consultant to provide non -discretionary investment management services is recommended and would complement the Finance Department’s ability to meet investment objectives by establishing a partnership with a n experienced and qualified professional consultant. With these services , the City’s investment portfolio would transition to being actively managed by an investment advisory firm; however, the City will continue to maintain the discretion to approve all recommended investment transactions before execution.
On November 23, 2022, t he City issued RFP # P13-2023 (Attachment 1) for non-discretionary investment management services. Chandler Asset Management, Inc., G alliard Capital Management, LLC, Meeder Public Funds, Inc. , and PFM Asset Management LLC submitted proposals in response to the RFP. The City’s evaluation team, consisting of the Director of Finance/Treasurer, Assistant Director of Finance, and the City’s Budget Manager, reviewed the written proposals to evaluate their qualific ations to provide non- discretionary investment management services . After a comprehensive assessment, staff recommends approving an agreement (Attachment 2) with Chandler Asset Management, Inc (“Chandler”) to provide non- discretionary investment management services to manage the City’s investment portfolio.
The most significant factors considered in recommending Chandler were they:
Provided the most local and similar clients as references Provided the best documentation of understanding the City’s scope of work and investment policy Provided o utstanding references, including testimonials of being service oriented, providing assistance beyond contracted services, validated performance beyond the benchmark while maintaining a lower risk than the benchmark
Provided superior reporting and integration software that will save on City staff time for accounting for investments
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With the award of the subject contract, the Finance Department and Chandler will work on developing every aspect of an investment program, including analysis of risk and return, investment policy development and review, and cash flow analysis and forecasting. Chandler will implement investment strategies that meet the City’s risk and return requirements, provide comprehensive investment reporting to save Finance Department staff time, and conduct education and training for staff enrichment. Chandler will provide monthly reporting, hold quarterly meetings to discuss quarterly results, and be available to present to the City Council as needed. Chandler will be assisting Finance Department Staff with the City’s quarterly financial reports and the annual update of the City’s Investment Policy and Guidelines, which ultimately will be submitted for City Council approval.
Staff is recommending the City enter into an initial three-year agreement from May 23, 2023 to June 30, 2026 with Chandler Asset Management, Inc. with up to two (2) one-year renewal options for a total of five (5) years (potentially through June 30, 2028).
The proposed compensation structure would be calculated on a monthly basis and would be based on the average market value of the City’s investment portfolio, including accrued interest, in accordance with the following schedule:
Assets Under Management Annual Investment Management Fee First $200 million 0.05 of 1% (5 basis points)
Next $100 million 0.04 of 1% (4 basis points)
Assets in excess of $300 million 0.03 of 1% (3 basis points)
The annual cost of investment management fees is estimated to be approximately $205,000. Staff anticipates that annual investment earnings will exceed annual investment management fees.
DECISION-MAKER CONFLICT
Staff has reviewed the decision contemplated by this action and has determined that it is not site-specific and consequently, the 500-foot rule found in California Code of Regulations Title 2, section 18702.2(a)(11), is not applicable to this decision for purposes of determining a disqualifying real property-related financial conflict of interest under the Political Reform Act (Cal. Gov't Code § 87100, et seq.).
Staff is not independently aware and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
CURRENT-YEAR FISCAL IMPACT
The annual cost of investment management fees is estimated to be approximately $205,000 and is included in the current fiscal year appropriations. These fees are offset by the interest earnings generated by the contract.
ONGOING FISCAL IMPACT
Ongoing funding for the annual cost of the investment management fees is included within the fiscal year 2024 proposed budget.
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ATTACHMENTS
Attachment 1: RFP # P13-2023 for Non-Discretionary Investment Management Services Attachment 2: Agreement with Chandler Asset Management, Inc. to Provide Non-Discretionary Investment Management Services
Staff Contact:
Adrian Del Rio, Assistant Director, Finance Department
Sarah Schoen, Director of Finance/Treasurer