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
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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
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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
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Forwarded to Council:
Rod Gould
City Manager
Reference:
Agreement No. 9888
(CCS)