HomeMy WebLinkAboutC-6263 - Investment Advisory Agreementty
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INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, entered into as of the I H__ day of : v ( 1992, by and
between CITY OF NEWPORT BEACH, a California Public Agency (hereinafter tl "Agency "), and
PUBLIC FINANCIAL MANAGEMENT, INC., a corporation with an office in San Francisco,
California, (hereinafter "PFM" or the "Investment Advisor ").
WITNESSETH
WHEREAS, the Agency has funds available for investment purposes (the "Initial Funds ")
for which it intends to conduct a temporary investment program; and
WHEREAS, the Agency wishes to arrange for professional cash management so as to
maximize earnings from temporary investments; and
WHEREAS, the Agency desires to avail itself of the experience, sources of information,
advice, assistance and facilities available to PFM and to have PFM undertake certain duties
and responsibilities and to perform certain services on behalf of the Agency as investment
advisor, as provided herein; and
WHEREAS, PFM is willing to provide such services on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed as follows:
Services of Advisor.
(a) PFM will provide investment management of the Initial Funds, and such other funds
as the Agency may from time to time assign to PFM (collectively the "Managed Funds "). In
connection therewith, PFM will provide investment research and supervision of the Agency's
investments and conduct a continuous program of investment, evaluation and when
appropriate, sale and reinvestment of the Agency's assets. PFM shall continuously monitor
investment opportunities and evaluate investments owned by the Agency or available to it.
(b) PFM shall furnish the Agency with statistical information and reports with respect
to investments which the Agency may own.
(c) PFM shall place all orders for the purchase, sale, loan or exchange of portfolio
securities for the Agency's account with brokers or dealers, and to that end PFM is authorized
as agent of the Agency to give instructions to the depository designated by the Agency as its
custodian as to deliveries of securities and payments of cash for the account of the Agency. The
depository designated by the Agency shall have custody of cash, assets and securities of the
Agency. PFM shall not take possession of or act as custodian for the cash, securities or other
assets in the Managed Funds and shall have no responsibility in connection therewith.
(d) Authorized investments shall include only those investments which may from time
to time be authorized by California law and written contracts or covenants entered into by the
Agency as a part of any debt financing it may undertake and are authorized by any written
investment policy adopted by the Agency. Investments will be limited to those specific
instruments authorized by the policy, which is attached to this contract as Exhibit 1. All
assets must be of a maturity less than five years, except that $1 million may be of maturity
between five and ten years, as long as the average maturity of the portfolio is less than five
years. PFM may not invest funds in the State of California's Local Agency Investment Fund.
(e) PFM shall ensure that orders are placed with reputable, qualified, and financially
sound brokers/ dealers. Trades may only be executed with primary dealers or banks which are
members of the Federal Reserve System. PFM shall, in a manner consistent with ensuring
safety of principal, exercise due diligence in establishing and maintaining brokers /dealers
qualifications and in conducting credit reviews and reviews on broker /dealer execution
capabilities. PFM shall not place Agency orders with any broker /dealer which the Agency has
by written notification instructed PFM to not utilize for Agency trades. In connection with the
selection of such brokers and dealers and the placing of such orders, PFM is directed to seek for
the Agency the most favorable execution and price.
(f) PFM is prohibited from utilizing the Agency's transaction activities or transaction
broker /dealer commission (soft dollars) for any research, service, or other benefit without
first obtaining the Agency's written consent. The Agency may grant or withhold such consent
in its sole discretion.
W PFM may not sell to the Agency a security from another client's account. All buys and
sells must be executed through a broker /dealer as specified in 1. (e).
2. Compensation.
(a) For services provided by PFM pursuant to this Agreement, the Agency shall pay PFM
an annual fee, in monthly installments, based on the daily net assets under management at the
rate of 0.14% on the first $10 million of assets under management and 0.12% on assets in
excess of $10 million. Funds invested in the Local Agency Investment Fund or the California
Arbitrage Management Program will be deducted from the daily net assets for purposes of
determining the fee. At its sole option the Agency may increase or decrease the Managed Funds
from time to time as the Agency deems appropriate.
(b) PFM will bill the Agency for work completed under terms of this Agreement, said bill
to include an enumeration of the average daily assets managed for the Agency by PFM during
the billing period. The Agency shall pay to PFM the amount payable pursuant to this
Agreement not later than on the 20th day of the month following the month during which the
services for the payment of which the fee is payable were rendered.
(c) If and to the extent that the Agency shall request PFM to render services for the
Agency other than those to be rendered by PFM hereunder, such additional services shall be
compensated separately on terms to be agreed upon between PFM and the Agency from time to
time.
3. Expenses.
(a) PFM shall furnish at its own expense all necessary administrative services, office
space, equipment, clerical personnel, telephone and other communication facilities,
investment advisory facilities, and executive and supervisory personnel for managing the
investments.
(b) Except as expressly provided otherwise herein, the Agency shall pay all of its own
expenses including, without limitation, taxes, commissions, fees and expenses of the Agency's
independent auditors and legal counsel, brokerage and other expenses connected with the
execution of portfolio security transactions, insurance premiums, fees and expenses of the
custodian for all services to the Agency including safekeeping of funds and securities and the
keeping of books and accounts.
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4. Responsibility of PFM.
PFM hereby represents it is a registered investment advisor under the Investment
Advisors Act of 1940. PFM shall immediately notify the Agency if at any time during the term
of this Agreement it is not so registered or if its registration is suspended. PFM agrees to
perform its duties and responsibilities under this Agreement with the care, skill, prudence, and
diligence under the circumstances then prevailing that a prudent man acting in a like capacity
and familiar with such matters, would use in the conduct of an enterprise of like character and
with like aims. (See especially, California Constitution Article 16 Section 17 and California
Government Code Section 31594 and 31595).
5. Limitation on Liability.
Except as otherwise provided in paragraph 4 and the prudent man test, PFM shall not be
liable for any error of judgement or mistake of law, or any loss arising out of any investment,
or act or omission in the execution and management of the Agency, except for misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of a disregard of its
obligations and duties hereunder.
6. Conflict of Interest.
The Agency understands that PFM performs investment advisory services for various
other clients which may include investment companies and /or commingled trust funds. The
Agency agrees that PFM may give advice or take action with respect to any of its other clients
which may differ from advice given or the timing or nature of action taken with respect to the
Agency's accounts, so long as it is the policy of PFM, to the extent practical, to allocate
investment opportunities to this account over a period of time on a fair and equitable basis
relative to other clients. PFM shall not have any obligation to purchase, sell or exchange for
this account any security which PFM, its principals, affiliates, or employees may purchase,
sell or exchange for the account of any other client or for itself or its own accounts if, in its
opinion, such transaction or investment appears to be unsuitable, impractical, or undesirable
for the Agency's account.
7. Term.
This Agreement may be terminated at any time without the payment of any penalty by
the Agency, on not less than thirty (30) days' written notice to the other party, or by PFM on not
less than ninety (90) days written notice to the other party. This agreement may be terminated
by the Agency immediately, with written notice, for just cause. PFM may terminate this
Agreement, with written notice, upon any material breach of its terms by the Agency.
S. Suspensions, Complaints.
PFM shall promptly notify the Agency in writing of any complaints or disciplinary
actions filed against it, or any subsidiary or affiliate, or any investment professional
employed by it who has performed any service with respect to the Agency's account in the 24
preceding months, by the Securities and Exchange Commission of the United States, the New
York Stock Exchange, the American Stock Exchange, the National Association of Securities
Dealers, any Attorney General or any regulatory agency of any state of the United States, any
department or agency of the Government of the United States, or any governmental agency
regulating securities of any country in which PFM is doing business.
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9. Independent Contractor.
PFM, its employees, officers and representatives, shall not be deemed to be employees,
agents, partners, servants, or joint venturers of the Agency by virtue of this Agreement or any
actions or services rendered under this Agreement. PFM is an independent contractor of the
Agency.
10. Books.
PFM shall maintain appropriate records of all its activities hereunder. PFM shall
provide to the Agency a monthly report, which provides a complete accounting of all
purchases, sales, maturities, interest payments, accrued interest, deposits and withdrawals for
the month. It will also include purchase price, par value, book value and market value for each
security. PFM shall instruct all brokers or dealers executing orders on the Managed Funds to
forward the Agency copies of all brokerage or dealer confirmations promptly after execution of
all transactions.
11. PFM's Disclosure Statement.
The Agency acknowledges receipt of PFM's current Securities and Exchange Commission
Form ADV, Part II (PFM's disclosure statement) at least five business days prior to the
execution of this Agreement.
PFM shall file with the City Clerk of the Agency the statements of economic interests
required by the California Fair Political Practices Commission.
12. Modification.
This contract shall not be changed, modified, terminated or discharged in whole or in
part, except by an instrument in writing signed by both parties hereto, or their respective
successors or assigns.
13. Successors and Assigns.
The provisions of this Agreement shall be binding on PFM and its respective successors
and assigns, provided, however, that the rights and obligations of PFM may not be assigned
without the prior written consent of the Agency.
14. Applicable Law.
This Agreement shall be construed, enforced, and administered according to the laws of
the State of California. PFM and the Agency agree that, should a disagreement arise as to the
terms or enforcement of any provision of this Agreement, each party will in good faith attempt
to resolve said disagreement prior to filing a lawsuit.
15. Validity.
The invalidity in whole or in part of any provision of this Agreement shall not void or
affect the validity of any other provision.
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16. Insurance.
a. Fidelity Insurance. PFM shall procure and maintain fidelity insurance coverage
protecting the Agency for PFM employee theft in the amount of no less than One Million
Dollars ($1,000,000) with respect to any one occurrence. In the event PFM is unable to procure
or maintain commercial Fidelity Insurance coverage, Marine Midland Bank, N. A. ( "Parent "),
which owns PFM, agrees to self - insure PFM for fidelity insurance coverage in the amount of
not less than One Million Dollars ($1,000,000). PFM shall provide evidence of such insurance.
Such policies shall provide that they may not be canceled or materially changed without at
least thirty (30) days written notice to the Agency's Director.
b. Errors and Omissions Insurance. During the term of this Agreement, PFM shall
maintain an errors and omissions insurance policy in the amount of not less than Five
Million Dollars ($5,000,000). In the event PFM is unable to procure or, maintain commercial
errors and omissions insurance coverage, Parent agrees to self- insure PFM for errors and
omissions coverage in the amount of not less than Five Million Dollars ($5,000,000). PFM
shall provide evidence of such insurance to the Agency and such policy may not be canceled or
materially changed without at least thirty (30) days written notice to the Agency.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
their authorized representatives as of the date set forth in the first paragraph of this
Agreement.
WITNESS:
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PUBLIC FINANCIAL MANAGEMENT, INC.
Name: Marty Margolis
Title: Managing Director
CITY OF NEWPORT BEACH
BY: C - {�vF✓
Name: 1?nr -t+4 -r4 Kvkx~f4
Title: �1.�AvTy �- ��lks✓c� t�ic.?m�
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STATEMENT OF INVESTMENT POLICY
INTRODUCTION
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It is the policy of the City to invest funds not required for immediate
s expenditures. Investments will be in compliance with governing
provisions of law and the policy contained herein. Primary investment
goals are security of principal, adequate liquidity maintenance, and
high yield; in that order. Investments shall be placed in securities as
outlined below. The balance between various investment instruments may
change in order to provide the.City with the best combination of high
yield, liquidity, and a consideration for other factors, such as
placement of an appropriate percentage of available investment funds
locally.
INVESTMENT AUTHORITY
Investment authority has been delegated to the Director of Finance, who
is responsible for administration of the City's investment program.
LIQUIDITY
{ Sufficient funding to accommodate at least an average of two week's
warrants is to be maintained in immediately available investments, such
as the State Local Agency Investment Fund, maturing certificates of
deposit, or similar liquid instruments. An analysis of cash flow must
be conducted at least weekly to serve as the basis for determining
appropriate maturities for investments.
ACCEPTABLE INVESTMENT INSTRUMENTS
The following are types of investments made by the City and the
guidelines for investing in each. In all cases, investments shall be
made in the context of the "Prudent Man" rule, which states, in part,
that:
...investments shall be made with judgment and care, under
circumstances then prevailing, which persons of prudence,
discretion, and intelligence exercise in the management of their
own affairs, not for speculation, but for investment, considering
the probable safety of their capital as well as the probable
income to be derived."
In this light, the City of Newport Beach does not purchase or sell
securities on margin. Additionally, any institution which holds either
the collateral or the investment instruments themselves in safekeeping
for the City must maintain at least $500,000,000 in assets.
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STATEMENT OF INVESTMENT POLICY - Page 2
Certificates of Deposit
City funds will be invested oniy in fully collaterized certificates of;
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deposit with FDIC insured institutions. Government securities having a
market value of 110% of the total amount of investment are acceptable as
collateral. As an alternative, first trust deeds having a value of 150%
of the total amount of investment are acceptable as collateral if
approved by the Finance Director on a case by case basis. Noncollater-
alized CDinvestments may be made in amounts less than $100,000 so long
as they are fully- insured by the FDIC.
No more than 10% of the City's investment portfolio shall be invested in
certificates of deposit with any one institution. CD's will not be
placed for a period of longer than one year. Additionally, the issuer
must agree to early maturity under emergency circumstances. Further, an
institution must meet the following critria to be considered by the
City:
The institution must maintain at least $200 million in assets
($100 million for fully insured CD's of. $100,000 or less).
The institution must have been in business at least three years.
The institution must have a net worth to asset ratio of at least
4 %.
The institution must be located in California.
The institution must place and maintain on file with the City an
audited financial statement not more than one year old.
Interest shall be paid to the City on a monthly basis.
Negotiable Certificates of Deposit
As a matter of policy, the City invests in Negotiable Certificates of
Deposit only with the largest U.S. Banks, so as to insure security and a
large, well - established secondary market. Ease of subsequent
marketability is further ascertained prior to initial investment by
examining currently quoted bids by primary dealers and the
acceptability of the issuer by these dealers. No one issuer shall
exceed more than 10% of the portfolio, and maturity shall not exceed one
year.
STATEMENT OF INVESTMENT POLICY - Page 3 F -1
Bankers Acceptances
The City shall invest only in Bankers Acceptances written by the 100 .
largest' banks in the world. In the case of foreign banks, the Bankers
Acceptances must be written by their U.S. branches. Maximum maturity
shall be-nine months. No more than 25% of the City's overall investment
portfolio,shall be placed in Bankers Acceptances.
U.S. Treasury Issues
The City may invest in treasury notes, bills and bonds. Safekeeping
documentation of these instruments in an acceptable an secure account in
the City's name is required. Average maturity of these instruments
shall be no more than five years from date of investment. No more than
25% of these securities or 10% of the City's overall portfolio,
whichever is less, shall have maturity greater than five years. There
shall be no investments with maturity greater than ten years.
Federal Agency Securities
Securities of this type that are acceptable for the City's investments
C are Federal Home Loan Bank notes, Federal National Mortgage Association
notes, Federal Farm Credit Bank notes, and Federal Intermediate Credit
Bank debentures. Security requirements and maturity limitations are the
same as those for U.S. Treasury issues.
Commercial Paper
The City shall only invest in commercial paper issued by large,
exceptionally well- established firms with the highest Moody's or
Standard & Poors ratings (A1 /P1). .Commercial paper shall be used solely
as a short -term investment not to exceed 180 days. Security
requirements are the same as those listed above.
Repurchase Agreements ( Repos)
Repos shall be used solely as a short -term investment not to exceed 30
days. The institution from which the City purchases a Repo must isolate
and specifically identify to the City's safekeeping account adequate
collateral of the type and magnitude specified under the Certificates of
Deposit section above. The amount of this collateral must be sufficient
to compensate for fluctuating market conditions. Repos will only be
purchased from the 10 largest banks in California.
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STATEMENT OF INVESTMENT POLICY - Page 5
REPORTING REQUIREMENTS
The City Council shall receive a detailed monthly listing of all k'
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investments in the City portfolio. The report must show the type of
investment, institution, date of maturity, amount of deposit/ investment,
..and rate of interest.
Adopted - April 6, 1959
Amended - November 9, 1970
Amended - February 11, 1974
Amended - February 9, 1981
Amended - October 27, 1986
Rewritten - October 22, 1990
Amended - January 28, 1991