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SR-04-08-2014-3Drea City of City Santa Monica City Council Meeting: April 8, 2014 Agenda Item: b To: Mayor and City Council From: Gigi Decavalles- Hughes, Director of Finance Subject: Cemetery and Mausoleum Perpetual Care Funds Investment Manager Agreement with Nelson Capital Management Recommended Action Staff recommends that the City Council authorize the City Manager to negotiate and execute a five -year professional services agreement with Nelson Capital Management, LLC, a California -based company, to provide investment management services for the Cemetery and Mausoleum Perpetual Care Funds. Fees for this contract are determined as a percentage of the value of the funds under management. Based on the value of the portfolio as of January 31, 2014, annual fees would approximate $63,000. In addition, there could be some additional pass- through fees for investments in certain instruments such as mutual funds. Executive Summary The City owns and operates Woodlawn Cemetery and Mausoleum. A portion of the sale of each burial plot, crypt, or niche is set aside for perpetual care services and is deposited into the Cemetery 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. Staff recommends the execution of a contract with Nelson Capital Management to provide investment management services. Nelson Capital Management is a wholly owned subsidiary of Wells Fargo and Company and part of the Wells Fargo Asset Management group. The annual fee would be calculated at 0.6% of the value of the portfolio. The term of the contract would be five years. Background RNC Genter Capital Management (RNC) has been the investment manager for the Cemetery and. Mausoleum Perpetual Care funds since 1992. The City's current agreement with RNC was authorized by Council on February 24, 2009. The agreement provides a term of three years followed by two options to extend the agreement by one additional year each. The First Modification of the agreement was executed in May 2012 extending the agreement to March 23, 2013. On March 12, 2013, the term of the agreement was extended to March 23, 2014. On February 2 22014, Council 11 authorized an extension of the term of the agreement to June 23, 2014 to allow for completion of the RFP process for investment management services. Discussion Investment guidelines for the perpetual care funds, which are set by the City Council, require retention of an investment manager for these funds since, unlike the City's investment portfolio, a significant portion of the perpetual care funds are invested in equities, which require a degree of investment expertise and continuous monitoring not otherwise available to City staff. Consultant Selection A Request for Proposal (RFP) for banking services was posted on the City's online bidding website in January 2014. The following six firms submitted proposals: • Angeles Advisors, LLC • Intergenerational Capital Management • Living Benefits Incorporated • Nelson Capital Management/Wells Fargo Asset Management • PFM Asset Management, LLC • RNC Genter Capital Management A panel composed of Finance and Public Works staff evaluated the proposals on the basis of City purchasing guidelines and the following criteria: • Experience and qualifications of firm and individuals that would be assigned to the account; • Record of investment performance; • Recommended approach to management of portfolio; • Familiarity with all applicable regulations; and • Fees As a result of the evaluation, the panel recommends Nelson Capital Management as best able to provide the full range of services that meet the City's needs. Specific 2 decision factors included Nelson Capital's approach to developing an investment plan for the portfolio consistent with the Cemetery and Mausoleum's long term goals, the ability to tailor the portfolio to meet these goals, and their expertise in the areas of socially responsible investing. The firm has authored papers in the areas of fossil fuel divestment and has a current strategic portfolio for "extraction free" investing. Additionally, the firm is signatory to the United Nations Principles for Responsible Investing (UNPRI), The Carbon Disclosure Project (CDP) and The Forest Footprint Disclosure (FFD). It currently manages over $1 billion in assets with socially responsible investing and sustainable mandates Financial Impacts & Budget Actions The annual fee for the investment management services will be 0.6% of the value of the portfolio. Certain additional pass through fees could apply if investments are made in certain products such as mutual funds. The value of the account as of January 31, 2014 was approximately $10.5 million. Therefore, annual fees at the current portfolio value would be approximately $63,000 ($10.5 million x 0.6 %). Fees in subsequent years will vary based on the value of the investment portfolio. Funds are available in the FY 2013 -14 budget in division 37641. The agreement will be charged to 37641.555060. Future funding is contingent on Council approval and budget adoption. Prepared by: David Carr, Assistant City Treasurer Director of Finance 3 Forwarded to Council: Rod Gould City Manager Reference: Agreement No. 9888 (CCS)