SR 09-27-2016 3J
Ci ty Council
Report
City Council Meeting : Septembe r 27, 2016
Agenda Item: 3.J
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To: Mayor and City Council
From: Gigi Decavalles -Hughes, Director , Finance Department, Revenue
Subject: Award Contract with RNC Capital Management LLC to Provide Investment
Management Services
Recommended Action
Staff recommends that the City Council au thorize the City Manager to negotiate and
execute a five -year professional services agreement with RNC Capital Management
LLC, a California -based company, to provide investment management services for the
Cemetery and Mausoleum Perpetual Care Funds. Fees depend on the value of the
funds under management and additional pass -through amounts for investments in
certain instruments . Based on the value of the portfolio as of June 30, 2016, staff
estimates annual fees would be approximate ly $69,000 .
Executive S ummary
The City requires consulting services to manage investment of the Woodlawn Cemetery
and Mausoleum perpetual care funds, which are subject to different requirements than
other City funds. Council approved Nelson Capital Management (Nelson Capital) a s the
investment manager in June 2014. RNC Capital Management LLC (RNC) served as
the former investment manager, from 1992 through 2014.
Following operational and ownership changes at Nelson Capital that affect the
consultant’s ability to meet City needs , staff recommends that the City enter into a new
agreement with RNC Capital for perpetual care fund investment management.
The new contract would be for a total of five years, ending in 2021, with a $69,000
estimated annual cost .
Background
The City o wns 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 p erpetual care fund, as appropriate. The
income from the se funds is used to pay for perpetual care costs. Perpetual care funds
have a distinct set of investment guidelines, which are set by Council rather than by
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State law as is the case for other City investments, and which therefore require the
specialized i nvestment expertise and continuous monitor ing of an investment manager.
RNC managed the City’s investments for the Cemetery and Mausoleum perpetual care
funds from 1992 until 2014 . On April 8, 2014 , Council authorized the City’s current
agreement with N elson Capital following a c ompetitive process (Attachments A, B ). The
current agreement provides a term o f five years, ending in 2019.
Discussion
Staff recommended Nelson Capital as the firm best able to meet the City’s needs
following the 2014 Request for Proposal process. Specific 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, a nd the firm’s expertise in the areas of socially responsible investing.
At the time of the agreement, Nelson Capital was a wholly owned but separately
operated subsidiary of Wells Fargo Bank. In May 2016, Nelson Capital advised the City
that it would mer ge into the Wells Fargo Private Bank Wealth and Management Group
(Wells Fargo) as of June 30, 2016. This change would require the City to modify and
re -sign the agreement, as Nelson Capital no longer exists as an entity, and provides the
option to reconsi der and potentially terminate the agreement. The change would also
result in the Cemetery and Mausoleum portfolio and the City’s overall portfolio being
handled by the same custodian. After a review and analysis of the changes that would
occur under new management, and ta king into consideration the preference to maintain
some diversification in the City’s various investment activities, staff recommends that
the City enter into a new agreement rather than transferring the current contract. Staff
further re commends that the City enter into a new agreement with RNC Capital
Management LLC (RNC).
The factors leading to the selection of Nelson Capital no longer apply following the
elimination of Nelson Capital and the departure of the Senior Portfolio Manager
responsible for managing these funds . Staff therefore recommends that the City
terminate its current agreement and award the contract for investment services to RNC ,
based on the strength of its proposal and long -term, successful relationship with the
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Cit y. RNC was the second ranked firm in the June 2014 competitive process, and
managed the Cemetery and Mausoleum portfolios from 1992 through 2014. RNC has
agreed to honor its 2014 proposal terms, including a fee at the current rate of 0.6% of
the value of the portfolio. The term of the contract w ould be five years.
Vendor Selection
Staff created a qualified list of vendors to provide perpetual care fund investment
services through the 2014 competitive process. Due to this recent process, s taff was
able to select from a n existing qualified list of vendors, rather than reissuing a request
for proposals .
RNC ’s proposal was the second choice of the S election C ommittee out of six bidders in
2014 (Attachment C ), and has a strong record of investment performa nce. As a former
manager of the Cemetery and Mausoleum Perpetual Funds from 1992 through 2014 ,
RNC is very familiar with the goals and objectives of the portfolio , including the socially
responsible guidelines. RNC’s experience during its tenure included implementing prior
divestment of City funds from South Africa, Myanmar, and Arizona based companies ,
and the current policy of fossil fuel divestment. RNC currently manages over $4 billion
in assets.
Financial Impacts and Budget Actions
The annual fee for the investment management services will not change from the
current rate of 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 accou nt as of June 30, 2016 was approximately $11.5 million. Therefore,
annual fees at the current portfolio value would be approximately $69,000 ($11.5 million
x 0.6%). Fees in subsequent years will vary based on the value of the investment
portfolio.
Funds are available in the FY 2016 -17 budget in division 37641. The agreement will be
charged to 37641.555060. Future funding is contingent on Council approval and budget
adoption.
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Prepared By: David Carr, Assistant City Treasurer
Approved
Forwarded to Co uncil
Attachments:
A. April 8, 2014 Staff Report
B. January 7, 2014 Request for Proposals
C. RNC Proposal
Cemetery and Mausoleum Perpetual Care Funds - City of Santa Monica
http://www.smgov.net/departments/council/agendas/2014/20140408/s2014040803-D.htm [9/20/2016 4:31:10 PM]
City Council Report
City Council Meeting: April 8, 2014
Agenda Item: 3-D
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 25, 2014 , Council 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.
Cemetery and Mausoleum Perpetual Care Funds - City of Santa Monica
http://www.smgov.net/departments/council/agendas/2014/20140408/s2014040803-D.htm [9/20/2016 4:31:10 PM]
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 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.
Cemetery and Mausoleum Perpetual Care Funds - City of Santa Monica
http://www.smgov.net/departments/council/agendas/2014/20140408/s2014040803-D.htm [9/20/2016 4:31:10 PM]
Prepared by: David Carr, Assistant City Treasurer
Approved: Forwarded to Council:
Gigi Decavalles-Hughes
Director of Finance
Rod Gould
City Manager
Reference:
Agreement No. 10366
(CCS)