CITY OF SALINAS
COUNCIL STAFF REPORT
______________________________________________________________________________ DATE: FEBRUARY 1, 2022
DEPARTMENT: FINANCE
FROM: MARK ROBERTS, DIRECTOR OF FINANCE
TITLE: PROFESSIONAL SERVICES AGREEMENT WITH CHANDLER ASSET MANAGEMENT, INC. FOR INVESTMENT MANAGEMENT AND ADVISORY SERVICES RECOMMENDED MOTION:
A motion to authorize the Mayor to execute a Professional Services Agreement with Chandler Asset Management, Inc. for investment management and advisory services for the period of February 2, 2022 through December 31, 2024 with two additional one-year options.
RECOMMENDATION:
It is recommended that the City Council approve a Resolution:
Authorizing the Mayor to execute a Professional Services Agreement with Chandler Asset Management, Inc. for investment management and advisory services for the period of February 2, 2022 through December 31, 2024 with two additional one-year options.
BACKGROUND
Currently, management of the investment of the City’s funds is performed internally with City staff placing most of the funds in the California Local Agency Investment Fund (LAIF) and purchasing individual short- and medium-term securities with the remaining funds. While these investments meet the objectives (in order) of safety of principal, liquidity, and return in accordance with Section 3 of the City of Salinas Annual Investment Policy and California Government Code §53600.5, the City likely is not maximizing the potential for returns. And with its limited resources, City staff cannot staff manage its investment portfolio as efficiently or effectively as desired. Acquiring professional investment management and advisory services will enhance the potential for higher returns while adhering to the objectives of safety and liquidity; therefore, City staff has sought these services via a request for proposals.
REQUEST FOR PROPOSALS PROCESS:
The City issued a request for proposals (“RfP”) for investment management and advisory services on November 10, 2021. The RfP was sent to several investment management and advisory firms and was posted on the City's and the California Society of Municipal Finance Officers’ (CSMFO’s) websites. Responses to the RfP were due by 5:00 pm on November 29, 2021.
The City received three proposals in response to the RfP. The firms submitting proposals, listed in alphabetical order, are:
Chandler Asset Management, Inc.;
PFM Asset Management, LLC;
Time Value Investments, Inc.
A selection panel reviewed the proposals, and all the responding firms were invited to deliver presentations and be interviewed by the panel on January 21, 2022. The selection panel included the following members:
Victor Damiani, Finance Director, City of Seaside
Harjot Sangha, Finance Director, City of Gilroy
Mark Roberts, Director of Finance
To rank the firms and provide a recommendation to the City Council, the interview panel considered:
relevant experience with California municipal governments; commitment of key members of the firm to the City’s portfolio; demonstrated knowledge of the work/services required;
proposed investment management and investment advisory methodology; and cost of services.
After reviewing and considering each proposal, the panel unanimously selected Chandler Asset Management, Inc. as the highest-ranking firm.
ABOUT CHANDLER ASSET MANAGEMENT, INC. (FROM SUBMITTED PROPOSAL):
Chandler Asset Management Inc. (“Chandler”) was founded in 1988 by the firm’s Chairwoman of the Board, Kay Chandler. Chandler is an SEC-registered, 100% employee-owned California corporation headquartered in San Diego specializing in structuring highly effective, fixed income cash and core investment programs for cities, counties, and other local government entities. As of September 30, 2021, Chandler managed more than $24.8 billion in assets for clients across the United States, including almost $19.9 billion for 324 public agencies. In addition, more than $20 billion of the total assets under its management are those of California institutional clients, including $7.0 billion for 61 California cities.
CEQA CONSIDERATION:
The City of Salinas has determined that the proposed action is not a project as defined by the California Environmental Quality Act (CEQA) (CEQA Guidelines Section 15378).
STRATEGIC PLAN INITIATIVE:
Since Chandler will manage the City’s investments in a more efficient and effective manner than City staff, with its limited resources, has been able to, the proposed action meets the Council goal of Operational Efficiencies.
FISCAL AND SUSTAINABILITY IMPACT:
As noted above, it is anticipated Chandler’s management of the City’s investment portfolio will earn greater returns than the City’s current management would. Due to the volatility of financial markets and fluctuations in interest rates, it is not possible to accurately calculate the overall fiscal impact of the recommended agreement. However, the table below compares the performance of Chandler-managed portfolios to that of the LAIF for the ten-year period ending September 30, 2021, and the value added by investments in Chandler management of an example $75 million investment. (In reviewing this example, it is important to note past performance is not necessarily indicative of future results.) Investment
Initial Investment
Annualized Rtn
10-Yr Per.
through 9/30/21
10-Yr Growth
Net of Fees
(8 bps*)
Value Added (vs LAIF)
LAIF
$75M
0.84%
$81.5M
NA
Chandler Lim. Maturity
(1-3 Year)
$75M
1.33%
$85.6M
$4.1M
Chandler Lim. Short-Term Bond (1-5 Year)
$75M
1.66%
$88.4M
$6.9M
* basis points
Chandler’s annual investment management fees will be based upon the average balance of assets under its direct management, in accordance with the following schedule:
Assets under Management Annual Investment Management Fee First $25M 0.10% (10 basis points)
Next $25M 0.08% (8 basis points)
Next $50M 0.06% (6 basis points)
Assets in excess of $100M 0.04% (4 basis points)
These fees are all-inclusive for the services Chandler will provide; however, these fees do not include custody fees the City may incur for third party custodial services, which are minimal.
The following table illustrates examples of fees assessed by Chandler based upon its “blended” rate (i.e., the effective rate resulting after application of the fee rates to the portfolio’s balance according to the schedule above) at different asset levels:
Assets Managed
Annual Fee
(Blended Rate)
Annual Fee
$50M
9 bps
$45,000
$75M
8 bps
$60,000
$100M
7.5 bps
$75,000
Chandler’s fees will be deducted from the investment portfolio’s assets.
ATTACHMENTS
Professional Services agreement – Chandler Asset Management, Inc.
Resolution