City Council
Report
City Council Meeting: February 11, 2025
Agenda Item: 4.A
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To: Mayor and City Council
From: Oscar Santiago, Director, Finance Department
Subject: Award Request for Proposal to Meeder Public Funds, Inc. for NonDiscretionary Investment Advisory and Portfolio Management Services Recommended Action
Staff recommends that the City Council:
1. Adopt a finding of no possibility of significant effect pursuant to Section 15061(b)(3) (Common Sense Exemption) of the California Environmental Quality Act (CEQA) Guidelines;
2. Award RFP# 431 to Meeder Public Funds, Inc. for non-discretionary Investment Advisory and Portfolio Management services for the Finance Department; and
3. Authorize the City Manager to negotiate and execute an agreement with Meeder Public Funds, Inc., in an estimated amount not to exceed $510,000 for three years, with two additional one-year renewal options in the amount of $340,000, on the same terms and conditions for a total amount not to exceed $850,000 over a five-year period, with future year funding contingent on Council budget approval.
Summary
It is the City’s policy to invest public funds in a manner that will safely preserve portfolio principal, provide adequate liquidity to meet the City’s cash flow needs, and optimize returns while conforming to all federal, state, and local statutes governing the investment of public funds. The effort involved in managing the investment portfolio requires investment expertise and continuous monitoring. Historically, the investment functions were managed in-house on a best-effort basis. With recent staffing changes, the opportunity arose to further enhance the City's investment portfolio to optimize returns. Therefore, staff recommends contracting for non-discretionary investment advisory and portfolio management services with Meeder Public Funds, Inc. (Meeder). 2 of 6
Under a non-discretionary arrangement, Meeder must obtain approval from the City Treasurer before executing any trade and all activity must comply with the guidelines of the City’s investment policy, investment objectives and governing laws to ensure appropriate financial controls are in place. By implementing this strategy, staff anticipates improved portfolio performance through economies of scale, reduced administrative burden and costs, and enhanced compliance and risk management.
Since 1992, the City has employed an investment management services strategy to manage the Cemetery and Mausoleum Perpetual Care Funds.
Discussion
The City invests in accordance with its Investment Policy (Attachment A) and State of California law. The City’s investments portfolio includes federal agency securities, medium term corporate notes, treasury securities, commercial paper, and municipal bonds. Additionally, a certain balance is also maintained in the State of California Local Agency Investment Fund (LAIF), which is managed by the State Treasurer’s Office. All securities owned by the City are held in safekeeping by the City’s custodial bank, acting as an agent for the City. The City may utilize the services of an investment advisor. The advisor must be registered with the Securities and Exchange Commission (SEC) and shall maintain a list of authorized broker-dealers and complete the appropriate due diligence in working with broker-dealers as required by the SEC.
For more than 30 years, the City’s investment functions were handled by the Assistant City Treasurer (ACT), until 2023 when the person retired. With the retirement of the ACT in 2023, the retirement of his replacement in 2024, there was a short time frame for knowledge transfer, the City lost the specialized expertise for managing investments.
Since then, staff has been managing investments with some assistance from our current brokers. Substantial staff time and resources are required in managing this function to ensure compliance with state regulations, maintain liquidity, and maximize returns. As financial markets become increasingly complex, the City faces challenges in effectively managing risk and optimizing investment opportunities within its policy 3 of 6
framework. The practice of managing investment functions in-house is less common these days, as a majority of cities use professional investment managers.
Additionally, the scope of responsibilities of the former position that administered the City’s investments have been realigned to focus on managing core revenue and taxrelated operational responsibilities rather than time-intensive investment monitoring and compliance tasks. With the realignment, staff identified the opportunity to implement a new strategy for managing investments, which would result in:
1. Improved Portfolio Performance and Optimization of Liquidity:
• Professional investment managers have access to sophisticated financial tools, a large pool of brokers-dealers, and market insights, leading to higher returns compared to internally managed portfolios.
• Through the RFP process, staff discovered that professionally managed municipal funds often achieve returns exceeding self-managed portfolios by
0.10% to 0.25%, which can translate to significant revenue over time. • The investment strategy would be optimized to better align with the City’s cash flow needs, reducing unnecessary liquidity costs while ensuring sufficient access to funds when needed.
2. Reduced Administrative Costs:
• Using an investment manager would enable staff to focus on core operational responsibilities rather than time-intensive tasks.
• There would be reduced need for additional training and specialized software.
Also, the City would save approximately $46,000 annually in software costs which would no longer be needed.
3. Enhanced Compliance and Risk Management:
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• The investment manager would ensure adherence to all applicable state laws and internal policies, mitigating potential audit risks and penalties associated with non-compliance.
4. Economies of Scale and Fee Efficiency:
• The investment manager would achieve economies of scale to access lower transaction fees and better investment opportunities. Staff anticipates that the cost of hiring an investment manager would be entirely offset by improved investment returns and operational savings.
Vendor Selection
Bidder Recommendation
Best Qualified Firm Best Qualified Firm
Evaluation Criteria Experience/Qualifications, Experience working with public agencies in California, Project Methodology, Stability/References, Presentation and Cost.
Municipal Code SMMC 2.24.190
RFPs Received
Chandler Asset
Management, Inc. Garcia Hamilton & Associates, L.P. Insight Investment Meeder Public Funds, Inc. Mesirow
PFM Asset Management – A
division of US Bancorp Asset
Management, Inc.
RFP Data
Posted On Posted On Advertised In
(City Charter & SMMC)
Vendors
Downloaded
Date Publicly
Opened
9/25/2024 City's Online
Bidding Site Santa Monica Daily Press 36 11/13/2024
Justification to Award
The evaluation process was conducted by an Evaluation Committee, comprised of subject matter experts and consisted of a two (2) phase process. The first phase identified proposals technically qualified to perform the work excluding price. The Evaluation Committee then determined the shortlist of proposers in accordance with the evaluation criteria. In the second phase, the Evaluation Committee selected the two (2) highest ranking proposals from the shortlisted proposals and included the evaluation of price. The two highest ranking proposals were invited to a virtual interview with the Evaluation Committee. Based on the evaluation criteria, staff recommends Meeder Public Funds, Inc. as the best qualified firm to provide investment advisory and portfolio management services due to the firm’s area of expertise; experience with public agencies such as City of Los Angeles, City of Redondo Beach, City of Anaheim and City of Irvine; project methodology; price of management fees; and references. 5 of 6
As is standard practice, investment management services fees are calculated based on a percentage of the value of the funds under management, which fluctuate based on the value of the assets. Meeder’s proposed fee is structured on tiered percentage of the market value of the investment portfolio (0.0325% for first $250M, 0.0225% for next $250M and 0.0215% for above $500M). The contract amount is estimated on an investable portfolio value of $650 million. The fees are anticipated to be approximately $170,000 annually, subject to change based on the fluctuating value of the portfolio.
Environmental Review
The award contract is exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15061(b)(3) (Common Sense Exemption) of the CEQA Guidelines, which states that CEQA does not apply, “where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.” The award contract would provide an administrative service to the City for investment management services. Therefore, it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.
Financial Impacts and Budget Actions
Staff seeks authority to approve available funding from the General Fund to award an agreement with Meeder for non-discretionary Investment Advisory and Portfolio Management services.
Agreement Request
FY 2024-25
Request Amount Department Account # Future Years Amount Total Contract
Amount
$85,000 01300005.534000.92308 $765,000 $850,000
Future year funding is contingent on Council budget approval. 6 of 6
Prepared By: Adriana Franco, Principal Administrative Analyst Approved Forwarded to Council
Attachments:
A. Attachment A - Annual Update on City Investment Policy (2025) B. Oaks Initiative Form - Meeder Public Funds
C. Living Wage Certification - Meeder Public Funds
D. Levine Act Disclosure Form - Meeder Public Funds