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council Meeting: /FtatlrlUdrfj /2/:/ / /J/rjrj2/ Santa Monica, California
March 3, 1992
TO: Mayor and City Council
FROM: City Staff
SUBJECT: RECOMMENDATION TO AUTHORIZE CITY MANAGER TO NEGOTIATE
AND EXECUTE A CONTRACT WITH RNC CAPITAL MANAGEMENT
COMPANY FOR INVESTMENT MANAGEMENT OF THE CITY'S
CEMETERY PERPETUAL CARE FUND AND MAUSOLEUM PERPETUAL
CARE FUND
INTRODUCTION
This report requests that city Council approve the negotiation
and executlon of a contract with RNC Capital Management Company
for investment management of the City's Cemetery Perpetual Care
and Mausoleum Perpetual Care Funds.
BACKGROUND
The city owns and operates the Woodlawn Cemetery and the
Mausoleum located on the cemetery grounds. A portion of the sale
of each burial plot, crypt, or niche is set aside for perpetual
care purposes and is deposited into the Cemetery Perpetual Care
Fund or Mausoleum Perpetual Care Fund, as appropriate. The
income from these funds is used to pay for perpetual care costs.
The principal can only be used for investment purposes. As of
1/31/92, $3.3 milllon was invested for these two funds.
In 1971, the city Council approved the retention of Scudder,
stevens, and Clark, Inc. as the Investment Manager for the
Cemetery Perpetual Care Fund. This was necessary because the
types of investments authorized for these funds such as common
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stocks required a degree of investment expertise and continuous
investment mon1toring ability not otherwise available to city
staff. In 1986, the city Council authorized the formal
establishment of the Mausoleum Perpetual Care Fund and the
transfer of these funds to Scudder, stevens, and Clark for
investment management. Prior to this, these funds had been
invested by the City under the same guidelines as other City
controlled funds.
Discussion
To ensure that the City was receiving the best investment return
possible for these funds at the lowest investment management
cost, staff sent Requests for Proposals (RFP) to fourteen
investment management companies, including Scudder, Stevens and
Clark, Inc. . Proposals were received from eight firms:
1) First Interstate Bank
2) Froley, Revy Investment
3) NWQ Investment Management Company
4) Palley-Needelman Asset Management, Inc.
5) Public Financial Management, Inc.
6) RNC Capital Management Company
7) Scudder, stevens, and Clark, Inc.
8) T. Rowe Price
Of the eight firms submitting RFP's, First Interstate Bank,
Froley, Revy, and Public Financial Management, Inc. were
eliminated from consideration as these managers specialized in
certain types of securities (fixed income or convertible
securities) that provided lower returns than the other five
managers. The remaining five managers were rated in each of five
categories according to a we1ghted average scale based upon what
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staff believes are the relative importance of each category:
experience - 25%, performance - 25%, fees - 25%, investment
approach or philosophy - 15%, and knowledge of applicable
regulations - 10%.
Staff then interviewed representatives of the top three ranked
firms. While the interviews showed all three firms to be
professional, competent, and capable of performing the services
required, RNC Capital Management Company was selected as the top
ranking firm.
RNC Capital Management Company, headquartered in West Los
Angeles, manages over $1 blllion in assets and has a number of
governmentaljmunlcipal cllents. A number of these clients have
special investment restrictions similar to Santa Monica such as
South Africa-Free and socially responsible guidelines. They have
a strong reputation in balanced fund investment performance.
BUDGET AND FINANCIAL IMPACT
There is a potential for an increased rate of return to the
Cemetery Perpetual Care and Mausoleum Perpetual Care funds as the
recent performance of RNC management has been better than
Scudder, stevens, and Clark. Sufficient funds have been included
in the FY1991-92 budget to pay the annual RNC Capital Management
Company fee: $18,100.
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RECOMMENDATION
It is recommended that the city Council authorize the City
Manager to negotiate and execute a contract with RNC Capital
Management Company for management of the City's Cemetery
Perpetual Care Fund and Mausoleum Perpetual Care Fund.
Prepared by: Mike Dennis, Director of Finance
Ralph Bursey, City Treasurer/Revenue Manager
David Carr, Assistant City Treasurer
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