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FROM:
CITY OF
NEWPORT BEACH
City Council Staff Report
November 14, 2017
Agenda Item No. 9
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
Dan Matusiewicz, Finance Director - 949-644-3123,
dmatusiewicz@newportbeachca.gov
PREPARED BY: Steve Montano, Deputy Finance Director,
smontano@newportbeachca.gov
PHONE: 949-644-3240
TITLE: Investment Advisor Contract with Chandler Asset Management
ABSTRACT:
The City previously engaged two separate investment managers to oversee a portion of
the City's investment portfolio totaling approximately $208 million, not including bond or
other short-term cash portfolios. At the end of a five-year contract cycle, the City solicited
and evaluated proposals with the specific intent to determine the appropriate mix of
investment managers while obtaining more advantageous pricing in the process. Based
on the proposal responses, staff selected Chandler Asset Management (Chandler) as the
sole investment manager and will sever its working relationship with the other. Staff's
recommendation was presented and supported by the Finance Committee.
RECOMMENDATION:
a) Determine this action is exempt from the California Environmental Quality Act (CEQA)
pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because
this action will not result in a physical change to the environment, directly or indirectly;
and
b) Approve a five-year professional service contract for investment advisory services with
Chandler Asset Management in a not -to -exceed contract of $675,000.
FUNDING REQUIREMENTS:
Based on the fee schedule associated with a five-year contract, the total annual cost for
the contract will range between $127,000 and $139,000 per year depending on the total
assets managed per year. The new contract will result in a savings to the City of
approximately $30,000 per year. There is sufficient funding for this contract. Since cash
and investments are pooled together for investment management purposes, the fees are
initially expensed to a non -departmental "Investment Advisor Fee" account, which is then
netted against investment earnings before earnings are shared and allocated to each
fund based on their proportionate cash balance.
9-1
Investment Advisor Contract with Chandler Asset Management
November 14, 2017
Page 2
DISCUSSION:
The Finance Department has outsourced the management of the City's investment
portfolio for more than 25 years. With increased staff workloads over the years, it is
increasingly clear that the City's portfolio has benefited from full time expert management
by professionally managed investment firms. During the last eight years, the Federal
Government has kept interest rates historically low, and reduced the inventory of agency
securities making investing the City's idle money and diversifying the portfolio more
challenging. Contracting for investment advisory services avails the City to a full
complement of investment services that would not be possible to do in-house without the
economy of scale that full-time investment advisory services command. This means our
investment portfolio is invested more safely because it benefits from full-time professional
attention, ongoing credit analysis and the industry tools and resources to manage public
funds effectively and prudently.
The City previously engaged five separate investment managers and five separate
custodial banks to oversee and safeguard its investment portfolio. In 2011, the City
evaluated proposals from investment advisory firms to evaluate the possibility of reducing
its number of investment managers and custody banks greatly improving efficiency and
reducing fees in the process. Based on the circumstances at that time, the City reduced
the number of service providers to Chandler, Cutwater Asset Management (Cutwater),
and PFM Asset Management (PFM) who each were awarded five-year contracts. On
October 6, 2014, the firm BNY Mellon, our current custody bank, announced its intention
to acquire Cutwater. The City terminated its contract with Cutwater shortly after and
transferred the assets previously managed by Cutwater to Chandler and PFM
proportionately. As part of its due diligence, staff intends to conduct a complete and
competitive selection process for investment advisory services at the end of every five-
year contract term.
Staff has traditionally undertaken the task of planning, preparing and facilitating the RFP
process for investment advisory services. Since the City had already engaged two
excellent firms, the task to differentiate the quality of services and best fit was going to be
a difficult task. Staff thought it was prudent to hire a consultant with (a) years of industry
experience who could attract a group of highly qualified firms to respond to the RFP; (b)
a demonstrated commitment to government excellence; and (c) the ability to undertake
this important and detailed work during a time when staff was consumed with preparing
the annual budget and undertaking the ERP implementation. The City hired the firm
Portfolio Services for Government, LLC (PSG) to review RFP expectations and logistics
with the City, prepare the RFP documents, analyze and summarize RFP responses, and
facilitate the finalist interview process.
Together with PSG, the City issued a Request for Proposal (RFP) for Investment Advisory
Services and by the proposal due date, six firms submitted proposals, including: Atlanta
Capital, Chandler, Eaton Vance Management, PFM, Public Trust Assets, and Reams
Asset Management. Proposals were submitted in two parts, including a written technical
proposal and a separated sealed dollar cost bid.
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Investment Advisor Contract with Chandler Asset Management
November 14, 2017
Page 3
Under the coordination of the Finance Director and PSG, proposals were reviewed and
ranked by a three-person Selection Committee comprised of the Finance Director, the
Deputy Finance Director and a staff Accountant in charge of investment accounting and
reconciliation. The written technical proposals were reviewed and ranked by the
Committee before the sealed dollar cost bids were opened and scored.
Staff evaluated and ranked each firm's proposals based on qualifications and experience,
management approach and discipline, value added services, and fees. Due to the lower
rankings assigned to Reams, Atlanta Capital, and Eaton Vance, staff did not advance
these three firms for further consideration. Staff narrowed their selection consideration
to Chandler, PFM, and Public Trust — all reputable firms that have experience with
meeting investment goals while providing continuity through challenging market cycles.
These firms were then invited back to a finalist presentation and interview responding to
16 specific questions that were provided to them in advance, and to respond to any other
questions the Selection Committee chose to probe further into.
While the three finalists met the qualifications; based on the technical content of the
proposals, the quality and experience of the proposed engagement staff, comparable
clients, and other intangibles; the Selection Committee ranked Chandler as the top overall
proposer deemed best able to meet the City's overall needs. Sealed dollar cost bids were
opened and revealed annual cost. Firms proposed a tiered fee structure based on the
total assets under management. The relative rankings and average fee rate based on
$200 million are summarized in the table to follow:
1 Assuming each firm had $200 million of assets
under management.
While any of the three finalists would make a great choice, staff selected Chandler as the
sole investment manager. The City values the relationship it has had with its past
investment advisors; however, we believe Chandler is currently the best fit for City at
present because of their narrow focus on fixed income investments, frequent direct
communication with portfolio managers, customizable solutions, favorable pricing and
other intangibles. Chandler also has a proven track record of understanding and
delivering on the City's cash flow needs, a history of providing excellent service and has
consistently performed well in up and down market conditions. Since 1991, Chandler's
portfolio managers have worked diligently to invest the City's portfolio in a manner that
fulfills the specific objectives for safety, liquidity and income in a prudent manner at a very
competitive price.
9-3
Fees as Percent
of Managed
Firm
Portfolio 1
Rank
Chandler
0.060%
1
PFM
0.070%
2
Public Trust
0.061%
3
Reams
0.078%
4
Atlanta Capital
0.093%
5
Eaton Vance
0.085%
6
1 Assuming each firm had $200 million of assets
under management.
While any of the three finalists would make a great choice, staff selected Chandler as the
sole investment manager. The City values the relationship it has had with its past
investment advisors; however, we believe Chandler is currently the best fit for City at
present because of their narrow focus on fixed income investments, frequent direct
communication with portfolio managers, customizable solutions, favorable pricing and
other intangibles. Chandler also has a proven track record of understanding and
delivering on the City's cash flow needs, a history of providing excellent service and has
consistently performed well in up and down market conditions. Since 1991, Chandler's
portfolio managers have worked diligently to invest the City's portfolio in a manner that
fulfills the specific objectives for safety, liquidity and income in a prudent manner at a very
competitive price.
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Investment Advisor Contract with Chandler Asset Management
November 14, 2017
Page 4
Chandler Asset Management is an SEC -registered investment advisor and woman -
owned business enterprise with its principal place of business located in San Diego,
California. Chandler's primary focus is managing funds for public agencies and other
conservative -minded clients who are guided by the objectives of preservation of principal,
access to cash, and maximization of investment outcome without undue exposure to risk.
Public Trust is a relatively new firm that has been in operation for five years. While Public
Trust has highly experienced financial professionals, staff believes that having a few more
years as an established firm would make it more attractive. Although the City has been
very satisfied with the past expert performance of PFM, City staff believes that a single
investment manager could more efficiently manage its portfolio at a lower cost and
streamline treasury operations without introducing new portfolio risk. In moving to one
investment manager, the City will lower its fee structure from approximately $150,000 to
$120,000, a savings of over $30,000 per year based on a $200 million average balance.
The City will also optimize the investment program by making better use of liquidity and
long-term funds. There will be additional staff efficiency by reducing coordination efforts,
reducing the number of quarterly meetings with investment advisors and fewer account
reconciliations. The incremental cost of investing new funds is also reduced by reaching
lower tiered pricing through one investment advisor.
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this action is not subject to the California
Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not
result in a direct or reasonably foreseeable indirect physical change in the environment)
and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA
Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no
potential for resulting in physical change to the environment, directly or indirectly.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the City Council considers the item).
ATTACHMENT:
Attachment A — Chandler Asset Management Professional Services Agreement
NEI'
Attachment A
Chandler Asset Management Professional Services Agreement
9-5
PROFESSIONAL SERVICES AGREEMENT
WITH CHANDLER ASSET MANAGEMENT, INC. FOR
INVESTMENT MANAGEMENT AND ADVISORY SERVICES
THIS PROFESSIONAL SERVICES AGREEMENT ("Agreement") is made and
entered into as of this 1st day of January, 2018 ("Effective Date"), by and between the
CITY OF NEWPORT BEACH, a California municipal corporation and charter city ("City"),
and CHANDLER ASSET MANAGEMENT, INC., a California corporation ("Consultant"),
whose address is 6225 Lusk Boulevard, San Diego, California 92121, and is made with
reference to the following:
RECITALS
A. City is a municipal corporation duly organized and validly existing under the laws
of the State of California with the power to carry on its business as it is now being
conducted under the statutes of the State of California and the Charter of City.
B. City is required to manage its operating portfolio of cash and marketable securities
in accordance with the City's current adopted investment policy, Council Policy F-
1. Council Policy F-1 is attached to this Agreement as Exhibit "A" and incorporated
herein by reference.
C. City desires to engage Consultant to provide investment management and
advisory services ("Project").
D. City has solicited and received a proposal from Consultant, has reviewed the
previous experience and evaluated the expertise of Consultant, and desires to
retain Consultant to render professional services under the terms and conditions
set forth in this Agreement.
E. Consultant represents it is a registered investment advisor under the Investment
Advisers Act of 1940 and possesses the skill, experience, ability, background,
certification and knowledge to provide the services described in this Agreement.
NOW, THEREFORE, it is mutually agreed by and between the undersigned parties
as follows:
1. TERM
The term of this Agreement shall commence on the Effective Date, and shall
terminate on December 31, 2022, unless terminated earlier as set forth herein.
2. SERVICES TO BE PERFORMED
Consultant shall diligently perform all the services described in the Scope of
Services attached hereto as Exhibit B and incorporated herein by reference ("Services"
or "Work"). City may elect to delete certain Services within the Scope of Services at its
sole discretion.
No
3. TIME OF PERFORMANCE
3.1 Time is of the essence in the performance of Services under this Agreement
and Consultant shall perform the Services in accordance with the schedule included in
Exhibit B. In the absence of a specific schedule, the Services shall be performed to
completion in a diligent and timely manner. The failure by Consultant to strictly adhere to
the schedule set forth in Exhibit B, if any, or perform the Services in a diligent and timely
manner may result in termination of this Agreement by City.
3.2 Notwithstanding the foregoing, Consultant shall not be responsible for
delays due to causes beyond Consultant's reasonable control. However, in the case of
any such delay in the Services to be provided for the Project, each party hereby agrees
to provide notice within two (2) calendar days of the occurrence causing the delay to the
other party so that all delays can be addressed.
3.3 Consultant shall submit all requests for extensions of time for performance
in writing to the Project Administrator as defined herein not later than ten (10) calendar
days after the start of the condition that purportedly causes a delay. The Project
Administrator shall review all such requests and may grant reasonable time extensions
for unforeseeable delays that are beyond Consultant's control.
3.4 For all time periods not specifically set forth herein, Consultant shall
respond in the most expedient and appropriate manner under the circumstances, by
hand -delivery or mail.
4. COMPENSATION TO CONSULTANT
4.1 City shall pay Consultant for the Services on a time and expense not -to -
exceed basis in accordance with the provisions of this Section and the Schedule of Billing
Rates attached hereto as Exhibit C and incorporated herein by reference. Consultant's
compensation for all Work performed in accordance with this Agreement, including all
reimbursable items and subconsultant fees, shall not exceed Six Hundred Seventy -Five
Thousand Dollars and 00/100 ($675,000.00), without prior written authorization from
City. No billing rate changes shall be made during the term of this Agreement without the
prior written approval of City.
4.2 Consultant shall submit monthly invoices to City describing the Work
performed the preceding month. Consultant's bills shall include the name of the person
who performed the Work, a brief description of the Services performed and/or the specific
task in the Scope of Services to which it relates, the date the Services were performed,
the number of hours spent on all Work billed on an hourly basis, a description of any
reimbursable expenditures, and the average monthly market value of assets under
management for the time period for which the fee is assessed and the total fee charged
in accordance with the schedule stated in Exhibit C. City shall pay Consultant no later
than thirty (30) calendar days after approval of the monthly invoice by City staff.
Chandler Asset Management, Inc. Page 2
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4.3 City shall reimburse Consultant only for those costs or expenses specifically
identified in Exhibit C to this Agreement or specifically approved in writing in advance by
City.
4.4 Consultant shall not receive any compensation for Extra Work performed
without the prior written authorization of City. As used herein, "Extra Work" means any
Work that is determined by City to be necessary for the proper completion of the Project,
but which is not included within the Scope of Services and which the parties did not
reasonably anticipate would be necessary at the execution of this Agreement.
Compensation for any authorized Extra Work shall be paid in accordance with the
Schedule of Billing Rates as set forth in Exhibit C.
5. PROJECT MANAGER
5.1 Consultant shall designate a Project Manager, who shall coordinate all
phases of the Project. This Project Manager shall be available to City at all reasonable
times during the Agreement term. Consultant has designated Jayson Schmitt to be its
Project Manager. Consultant shall not remove or reassign the Project Manager or any
personnel listed in Exhibit B or assign any new or replacement personnel to the Project
without the prior written consent of City. City's approval shall not be unreasonably
withheld with respect to the removal or assignment of non -key personnel.
5.2 Consultant, at the sole discretion of City, shall remove from the Project any
of its personnel assigned to the performance of Services upon written request of City.
Consultant warrants that it will continuously furnish the necessary personnel to complete
the Project on a timely basis as contemplated by this Agreement.
5.3 If Consultant is performing inspection services for City, the Project Manager
and any other assigned staff shall be equipped with a cellular phone to communicate with
City staff. The Project Manager's cellular phone number shall be provided to City.
6. ADMINISTRATION
This Agreement will be administered by the Finance Department. City's Finance
Director or designee shall be the Project Administrator and shall have the authority to act
for City under this Agreement. The Project Administrator shall represent City in all matters
pertaining to the Services to be rendered pursuant to this Agreement.
7. CITY'S RESPONSIBILITIES
To assist Consultant in the execution of its responsibilities under this Agreement,
City agrees to provide access to and upon request of Consultant, one copy of all existing
relevant information on file at City. City will provide all such materials in a timely manner
so as not to cause delays in Consultant's Work schedule.
Chandler Asset Management, Inc. Page 3
8. STANDARD OF CARE
8.1 All of the Services shall be performed by Consultant or under Consultant's
supervision. Consultant represents that it possesses the professional and technical
personnel required to perform the Services required by this Agreement, and that it will
perform all Services in a manner commensurate with community professional standards
and with the ordinary degree of skill and care that would be used by other reasonably
competent practitioners of the same discipline under similar circumstances. All Services
shall be performed by qualified and experienced personnel who are not employed by City.
By delivery of completed Work, Consultant certifies that the Work conforms to the
requirements of this Agreement, all applicable federal, state and local laws, and legally
recognized professional standards.
8.2 Consultant represents and warrants to City that it has, shall obtain, and shall
keep in full force and effect during the term hereof, at its sole cost and expense, all
licenses, permits, qualifications, insurance and approvals of whatsoever nature that is
legally required of Consultant to practice its profession. Consultant shall maintain a City
of Newport Beach business license during the term of this Agreement.
8.3 Consultant shall not be responsible for delay, nor shall Consultant be
responsible for damages or be in default or deemed to be in default by reason of strikes,
lockouts, accidents, acts of God, or the failure of City to furnish timely information or to
approve or disapprove Consultant's Work promptly, or delay or faulty performance by
City, contractors, or governmental agencies.
9. HOLD HARMLESS
9.1 To the fullest extent permitted by law, Consultant shall indemnify, defend
and hold harmless City, its City Council, boards and commissions, officers, agents,
volunteers and employees (collectively, the "Indemnified Parties") from and against any
and all claims (including, without limitation, claims for bodily injury, death or damage to
property), demands, obligations, damages, actions, causes of action, suits, losses,
judgments, fines, penalties, liabilities, costs and expenses (including, without limitation,
attorneys' fees, disbursements and court costs) of every kind and nature whatsoever
(individually, a Claim; collectively, "Claims"), which may arise from or in any manner relate
(directly or indirectly) to any breach of the terms and conditions of this Agreement, any
Work performed or Services provided under this Agreement including, without limitation,
defects in workmanship or materials or Consultant's presence or activities conducted on
the Project (including the negligent, reckless, and/or willful acts, errors and/or omissions
of Consultant, its principals, officers, agents, employees, vendors, suppliers, consultants,
subcontractors, anyone employed directly or indirectly by any of them or for whose acts
they may be liable, or any or all of them).
9.2 Notwithstanding the foregoing, nothing herein shall be construed to require
Consultant to indemnify the Indemnified Parties from any Claim arising from the sole
negligence or willful misconduct of the Indemnified Parties. Nothing in this indemnity shall
be construed as authorizing any award of attorneys' fees in any action on or to enforce
Chandler Asset Management, Inc. Page 4
the terms of this Agreement. This indemnity shall apply to all claims and liability
regardless of whether any insurance policies are applicable. The policy limits do not act
as a limitation upon the amount of indemnification to be provided by Consultant.
10. INDEPENDENT CONTRACTOR
It is understood that City retains Consultant on an independent contractor basis
and Consultant is not an agent or employee of City. The manner and means of
conducting the Work are under the control of Consultant, except to the extent they are
limited by statute, rule or regulation and the expressed terms of this Agreement. No civil
service status or other right of employment shall accrue to Consultant or its employees.
Nothing in this Agreement shall be deemed to constitute approval for Consultant or any
of Consultant's employees or agents, to be the agents or employees of City. Consultant
shall have the responsibility for and control over the means of performing the Work,
provided that Consultant is in compliance with the terms of this Agreement. Anything in
this Agreement that may appear to give City the right to direct Consultant as to the details
of the performance of the Work or to exercise a measure of control over Consultant shall
mean only that Consultant shall follow the desires of City with respect to the results of the
Services. Notwithstanding the above, it is understood that Consultant is allowed to act as
City's agent with respect to making transactions in the purchase and sale of securities on
City's behalf.
11. COOPERATION
Consultant agrees to work closely and cooperate fully with City's designated
Project Administrator and any other agencies that may have jurisdiction or interest in the
Work to be performed. City agrees to cooperate with the Consultant on the Project.
12. CITY POLICY
Consultant shall discuss and review all matters relating to policy and Project
direction with City's Project Administrator in advance of all critical decision points in order
to ensure the Project proceeds in a manner consistent with City goals and policies.
13. PROGRESS
Consultant is responsible for keeping the Project Administrator informed on a
regular basis regarding the status and progress of the Project, activities performed and
planned, and any meetings that have been scheduled or are desired.
14. INSURANCE
Without limiting Consultant's indemnification of City, and prior to commencement
of Work, Consultant shall obtain, provide and maintain at its own expense during the term
of this Agreement or for other periods as specified in this Agreement, policies of insurance
of the type, amounts, terms and conditions described in the Insurance Requirements
attached hereto as Exhibit D, and incorporated herein by reference.
Chandler Asset Management, Inc. Page 5
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15. PROHIBITION AGAINST ASSIGNMENTS AND TRANSFERS
Except as specifically authorized under this Agreement, the Services to be
provided under this Agreement shall not be assigned, transferred contracted or
subcontracted out without the prior written approval of City. Any of the following shall be
construed as an assignment: The sale, assignment, transfer or other disposition of any
of the issued and outstanding capital stock of Consultant, or of the interest of any general
partner or joint venturer or syndicate member or cotenant if Consultant is a partnership or
joint -venture or syndicate or co -tenancy, which shall result in changing the control of
Consultant. Control means fifty percent (50%) or more of the voting power or twenty-five
percent (25%) or more of the assets of the corporation, partnership or joint -venture.
16. SUBCONTRACTING
The subcontractors authorized by City, if any, to perform Work on this Project are
identified in Exhibit B. Consultant shall be fully responsible to City for all acts and
omissions of any subcontractor. Nothing in this Agreement shall create any contractual
relationship between City and any subcontractor nor shall it create any obligation on the
part of City to pay or to see to the payment of any monies due to any such subcontractor
other than as otherwise required by law. City is an intended beneficiary of any Work
performed by the subcontractor for purposes of establishing a duty of care between the
subcontractor and City. Except as specifically authorized herein, the Services to be
provided under this Agreement shall not be otherwise assigned, transferred, contracted
or subcontracted out without the prior written approval of City.
17. OWNERSHIP OF DOCUMENTS
17.1 Each and every report, draft, map, record, plan, document and other writing
produced, including but not limited to, websites, blogs, social media accounts and
applications (hereinafter "Documents"), prepared or caused to be prepared by Consultant,
its officers, employees, agents and subcontractors, in the course of implementing this
Agreement, shall become the exclusive property of City, and City shall have the sole right
to use such materials in its discretion without further compensation to Consultant or any
other party. Additionally, all material posted in cyberspace by Consultant, its officers,
employees, agents and subcontractors, in the course of implementing this Agreement,
shall become the exclusive property of City, and City shall have the sole right to use such
materials in its discretion without further compensation to Consultant or any other party.
Consultant shall, at Consultant's expense, provide such Documents, including all logins
and password information to City upon prior written request.
17.2 Documents, including drawings and specifications, prepared by Consultant
pursuant to this Agreement are not intended or represented to be suitable for reuse by
City or others on any other project. Any use of completed Documents for other projects
and any use of incomplete Documents without specific written authorization from
Consultant will be at City's sole risk and without liability to Consultant. Further, any and
all liability arising out of changes made to Consultant's deliverables under this Agreement
by City or persons other than Consultant is waived against Consultant, and City assumes
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full responsibility for such changes unless City has given Consultant prior notice and has
received from Consultant written consent for such changes.
17.3 All written documents shall be transmitted to City in formats compatible with
Microsoft Office and/or viewable with Adobe Acrobat.
18. CONFIDENTIALITY
All Documents, including drafts, preliminary drawings or plans, notes and
communications that result from the Services in this Agreement, shall be kept confidential
unless City expressly authorizes in writing the release of information.
19. INTELLECTUAL PROPERTY INDEMNITY
Consultant shall defend and indemnify City, its agents, officers, representatives
and employees against any and all liability, including costs, for infringement or alleged
infringement of any United States' letters patent, trademark, or copyright, including costs,
contained in Consultant's Documents provided under this Agreement.
20. RECORDS
Consultant shall keep records and invoices in connection with the Services to be
performed under this Agreement. Consultant shall maintain complete and accurate
records with respect to the costs incurred under this Agreement and any Services,
expenditures and disbursements charged to City, for a minimum period of three (3) years,
or for any longer period required by law, from the date of final payment to Consultant
under this Agreement. All such records and invoices shall be clearly identifiable.
Consultant shall allow a representative of City to examine, audit and make transcripts or
copies of such records and invoices during regular business hours. Consultant shall allow
inspection of all Work, data, Documents, proceedings and activities related to the
Agreement for a period of three (3) years from the date of final payment to Consultant
under this Agreement.
21. WITHHOLDINGS
City may withhold payment to Consultant of any disputed sums until satisfaction of
the dispute with respect to such payment. Such withholding shall not be deemed to
constitute a failure to pay according to the terms of this Agreement. Consultant shall not
discontinue Work as a result of such withholding. Consultant shall have an immediate
right to appeal to the City Manager or designee with respect to such disputed sums.
Consultant shall be entitled to receive interest on any withheld sums at the rate of return
that City earned on its investments during the time period, from the date of withholding of
any amounts found to have been improperly withheld.
22. ERRORS AND OMISSIONS
In the event of errors or omissions that are due to the negligence or professional
inexperience of Consultant which result in expense to City greater than what would have
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resulted if there were not errors or omissions in the Work accomplished by Consultant,
the additional design, construction and/or restoration expense shall be borne by
Consultant. Nothing in this Section is intended to limit City's rights under the law or any
other sections of this Agreement.
23. CITY'S RIGHT TO EMPLOY OTHER CONSULTANTS
City reserves the right to employ other Consultants in connection with the Project.
24. CONFLICTS OF INTEREST
24.1 Consultant or its employees may be subject to the provisions of the
California Political Reform Act of 1974 (the "Act"), which (1) requires such persons to
disclose any financial interest that may foreseeably be materially affected by the Work
performed under this Agreement, and (2) prohibits such persons from making, or
participating in making, decisions that will foreseeably financially affect such interest.
24.2 If subject to the Act, Consultant shall conform to all requirements of the Act.
Failure to do so constitutes a material breach and is grounds for immediate termination
of this Agreement by City. Consultant shall indemnify and hold harmless City for any and
all claims for damages resulting from Consultant's violation of this Section.
25. NOTICES
25.1 All notices, demands, requests or approvals, including any change in
mailing address, to be given under the terms of this Agreement shall be given in writing,
and conclusively shall be deemed served when delivered personally, or on the third
business day after the deposit thereof in the United States mail, postage prepaid, first-
class mail, addressed as hereinafter provided.
25.2 All notices, demands, requests or approvals from Consultant to City shall
be addressed to City at:
Attn: Finance Director
Finance Department
City of Newport Beach
100 Civic Center Drive
PO Box 1768
Newport Beach, CA 92658
25.3 All notices, demands, requests or approvals from City to Consultant shall
be addressed to Consultant at:
Attn: Jayson Schmitt
Chandler Asset Management, Inc.
6225 Lusk Boulevard
San Diego, CA 92121
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26. CLAIMS
Unless a shorter time is specified elsewhere in this Agreement, before making its
final request for payment under this Agreement, Consultant shall submit to City, in writing,
all claims for compensation under or arising out of this Agreement. Consultant's
acceptance of the final payment shall constitute a waiver of all claims for compensation
under or arising out of this Agreement except those previously made in writing and
identified by Consultant in writing as unsettled at the time of its final request for payment.
Consultant and City expressly agree that in addition to any claims filing requirements set
forth in the Agreement, Consultant shall be required to file any claim Consultant may have
against City in strict conformance with the Government Claims Act (Government Code
sections 900 et seq.).
27. TERMINATION
27.1 In the event that either party fails or refuses to perform any of the provisions
of this Agreement at the time and in the manner required, that party shall be deemed in
default in the performance of this Agreement. If such default is not cured within a period
of two (2) calendar days, or if more than two (2) calendar days are reasonably required
to cure the default and the defaulting party fails to give adequate assurance of due
performance within two (2) calendar days after receipt of written notice of default,
specifying the nature of such default and the steps necessary to cure such default, and
thereafter diligently take steps to cure the default, the non -defaulting party may terminate
the Agreement forthwith by giving to the defaulting party written notice thereof.
27.2 Notwithstanding the above provisions, City shall have the right, at its sole
and absolute discretion and without cause, of terminating this Agreement at any time by
giving no less than seven (7) calendar days' prior written notice to Consultant. In the
event of termination under this Section, City shall pay Consultant for Services
satisfactorily performed and costs incurred up to the effective date of termination for which
Consultant has not been previously paid. On the effective date of termination, Consultant
shall deliver to City all reports, Documents and other information developed or
accumulated in the performance of this Agreement, whether in draft or final form.
28. STANDARD PROVISIONS
28.1 Recitals. City and Consultant acknowledge that the above Recitals are true
and correct and are hereby incorporated by reference into this Agreement.
28.2 Compliance with all Laws. Consultant shall, at its own cost and expense,
comply with all statutes, ordinances, regulations and requirements of all governmental
entities, including federal, state, county or municipal, whether now in force or hereinafter
enacted. In addition, all Work prepared by Consultant shall conform to applicable City,
county, state and federal laws, rules, regulations and permit requirements and be subject
to approval of the Project Administrator and City.
28.3 Waiver. A waiver by either party of any breach, of any term, covenant or
condition contained herein shall not be deemed to be a waiver of any subsequent breach
Chandler Asset Management, Inc. Page 9
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of the same or any other term, covenant or condition contained herein, whether of the
same or a different character.
28.4 Integrated Contract. This Agreement represents the full and complete
understanding of every kind or nature whatsoever between the parties hereto, and all
preliminary negotiations and agreements of whatsoever kind or nature are merged herein.
No verbal agreement or implied covenant shall be held to vary the provisions herein.
28.5 Conflicts or Inconsistencies. In the event there are any conflicts or
inconsistencies between this Agreement and the Scope of Services or any other
attachments attached hereto, the terms of this Agreement shall govern.
28.6 Interpretation. The terms of this Agreement shall be construed in
accordance with the meaning of the language used and shall not be construed for or
against either party by reason of the authorship of the Agreement or any other rule of
construction which might otherwise apply.
28.7 Amendments. This Agreement may be modified or amended only by a
written document executed by both Consultant and City and approved as to form by the
City Attorney.
28.8 Severability. If any term or portion of this Agreement is held to be invalid,
illegal, or otherwise unenforceable by a court of competent jurisdiction, the remaining
provisions of this Agreement shall continue in full force and effect.
28.9 Controlling Law and Venue. The laws of the State of California shall govern
this Agreement and all matters relating to it and any action brought relating to this
Agreement shall be adjudicated in a court of competent jurisdiction in the County of
Orange, State of California.
28.10 Equal Opportunity Employment. Consultant represents that it is an equal
opportunity employer and it shall not discriminate against any subcontractor, employee
or applicant for employment because race, religious creed, color, national origin,
ancestry, physical handicap, medical condition, marital status, sex, sexual orientation,
age or any other impermissible basis under law.
28.11 No Attorneys' Fees. In the event of any dispute or legal action arising under
this Agreement, the prevailing party shall not be entitled to attorneys' fees.
28.12 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original and all of which together shall
constitute one (1) and the same instrument.
[SIGNATURES ON NEXT PAGE]
Chandler Asset Management, Inc. Page 10
9-15
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the dates written below.
APPROVED AS TO FORM:
CITY ATTORNEY'S OFFICE
Date: If /2./ i -i
Aaron C. H rp uA �0�3,00
City Attorney
ATTEST:
Date:
CITY OF NEWPORT BEACH,
a California municipal corporation
Date:
By:
Kevin Muldoon
Mayor
CONSULTANT: Chandler Asset
Management, Inc., a California
corporation
Date:
By: By:
Leilani I. Brown Martin D. Cassell
City Clerk Chief Executive Officer
Date:
Bv:
Nicole Dragoo
Secretary
[END OF SIGNATURES]
Attachments: Exhibit A — Council Policy F-1
Exhibit B — Scope of Services
Exhibit C — Schedule of Billing Rates
Exhibit D -- Insurance Requirements
Chandler Asset Management, Inc. Page 11
9-16
EXHIBIT A
COUNCIL POLICY F-1
Chandler Asset Management, Inc. Page A-1
9-17
STATEMENT OF INVESTMENT POLICY
PURPOSE:
F-1
The City Council has adopted this Investment Policy (the Policy) in order to establish the
scope of the investment policy, investment objectives, standards of care, authorized
investments, investment parameters, reporting, investment policy compliance and
adoption, and the safekeeping and custody of assets.
This Policy is organized in the following sections:
A. Scope of Investment Policy
1. Pooling of Funds
2. Funds Included in the Policy
3. Funds Excluded from the Policy
B. Investment Objectives
1. Safety
2. Liquidity
3. Yield
C. Standards of Care
1. Prudence
2. Ethics and Conflicts of Interest
3. Delegation of Authority
4. Internal Controls
D. Banking Services
E. Broker/Dealers
F. Safekeeping and Custody of Assets
G. Authorized Investments
1. Investments Specifically Permitted
2. Investments Specifically Not Permitted
3. Exceptions to Prohibited and Restricted Investments
H. Investment Parameters
1. Diversification
2. Maximum Maturities
3. Credit Quality
4. Competitive Transactions
I. Portfolio Performance
J. Reporting
K. Investment Policy Compliance and Adoption
1. Compliance
2. Adoption
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A. SCOPE OF INVESTMENT POLICY
1. Pooling of Funds
All cash shall be pooled for investment purposes. The investment income
derived from the pooled investment shall be allocated to the contributing
funds, net of all banking and investing expenses, based upon the proportion
of the respective average balances relative to the total pooled balance.
Investment income shall be distributed to the individual funds not less than
annually.
2. Funds Included in the Policy
The provisions of this Policy shall apply to all financial assets of the City as
accounted for in the City's Comprehensive Annual Financial Report,
including;
a) General Fund
b) Special Revenue Funds
c) Capital Project Funds
d) Enterprise Funds
e) Internal Service Funds
f) Trust and Agency Funds
g) Permanent Endowment Funds
h) Any new fund created unless specifically exempted
If the City invests funds on behalf of another agency and, if that agency
does not have its own investment policy, this Policy shall govern the
agency's investments.
3. Funds Excluded from this Policy
Bond Proceeds - Investment of bond proceeds will be made in accordance
with applicable bond indentures.
B. INVESTMENT OBJECTIVES
The City's funds shall be invested in accordance with all applicable City policies
and codes, State statutes, and Federal regulations, and in a manner designed to
accomplish the following objectives, which are listed in priority order:
1. Safety
Preservation of principal is the foremost objective of the investment
program. Investments of the City shall be undertaken in a manner that
seeks to ensure the preservation of capital in the overall portfolio. The
objective shall be to mitigate credit risk and interest rate risk. To attain this
objective, the City shall diversify its investments by investing funds among
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several financial institutions and a variety of securities offering
independent returns.
a) Credit Risk
The City shall minimize credit risk, the risk of loss due to the
failure of the security issuer or backer, by:
■ Limiting investments in securities that have higher credit risks,
pre -qualifying the financial institutions, broker/dealers,
intermediaries, and advisors with which the City will do
business
■ Diversifying the investment portfolio so as to minimize the
impact any one industry/ investment class can have on the
portfolio
b) Interest Rate Risk
To minimize the negative impact of material changes in the market
value of securities in the portfolio, the City shall:
■ Structure the investment portfolio so that securities mature
concurrent with cash needs to meet anticipated demands,
thereby avoiding the need to sell securities on the open
market prior to maturity
■ Invest in securities of varying maturities
2. Liquidity
The City's investment portfolio shall remain sufficiently liquid to enable the
City to meet all operating requirements which might be reasonably
anticipated without requiring a sale of securities. Since all possible cash
demands cannot be anticipated, the portfolio should consist largely of
securities with active secondary or resale markets. A portion of the portfolio
also may be placed in money market mutual funds or LAIF which offer
same-day liquidity for short-term funds.
3. Yield
The City's investment portfolio shall be designed with the objective of
attaining a benchmark rate of return throughout budgetary and economic
cycles, commensurate with the City's investment risk constraints and the
liquidity characteristics of the portfolio. Return on investment is of
secondary importance compared to the safety and liquidity objectives
described above. The core of investments is limited to relatively low risk
securities in anticipation of earning a fair return relative to the risk being
assumed.
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C. STANDARDS OF CARE
1. Prudence
The standard of prudence to be used for managing the City's investment
program is California Government Code Section 53600.3, the prudent
investor standard, which states that "when investing, reinvesting,
purchasing, acquiring, exchanging, selling, or managing public funds, a
trustee shall act with care, skill, prudence, and diligence under the
circumstances then prevailing, including, but not limited to, the general
economic conditions and the anticipated needs of the agency, that a prudent
person acting in a like capacity and familiarity with those matters would
use in the conduct of funds of a like character and with like aims, to
safeguard the principal and maintain the liquidity needs of the agency."
The City's overall investment program shall be designed and managed with
a degree of professionalism that is worthy of the public trust. The City
recognizes that no investment is totally without risk and that the
investment activities of the City are a matter of public record. Accordingly,
the City recognizes that occasional measured losses may occur in a
diversified portfolio and shall be considered within the context of the
overall portfolio's return, provided that adequate diversification has been
implemented and that the sale of a security is in the best long-term interest
of the City.
The Finance Director and authorized investment personnel acting in
accordance with established procedures and exercising due diligence shall
be relieved of personal responsibility for an individual security's credit risk
or market price changes, provided that deviations from expectations are
reported in a timely fashion to the City Council and appropriate action is
taken to control adverse developments.
2. Ethics and Conflicts of Interest
Elected officials and employees involved in the investment process shall
refrain from personal business activity that could conflict with proper
execution of the City's investment program or could impair or create the
appearance of an impairment of their ability to make impartial investment
decisions. Employees and investment officials shall subordinate their
personal investment transactions to those of the City. In addition, City
Council members, the City Manager, and the Finance Director shall file a
Statement of Economic Interests each year as required by California
Government Code Section 87203 and regulations of the Fair Political
Practices Commission.
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3. Delegation of Authority
Authority to manage the City's investment program is derived from the
Charter of the City of Newport Beach section 605 (j). The Finance Director
shall assume the title of and act as City Treasurer and with the approval of
the City Manager appoint deputies annually as necessary to act under the
provisions of any law requiring or permitting action by the City Treasurer.
The Finance Director may then delegate the authority to conduct
investment transactions and to manage the operation of the investment
portfolio to other specifically authorized staff members. No person may
engage in an investment transaction except as expressly provided under the
terms of this Policy.
The City may engage the support services of outside investment advisors
with respect to its investment program, so long as it can be demonstrated
that these services produce a net financial advantage or necessary financial
protection of the City's financial resources. Such companies must be
registered under the Investment Advisors Act of 1940, be well-established
and exceptionally reputable. Members of the staff of such companies who
will have primary responsibility for managing the City's investments must
have a working familiarity with the special requirements and constraints of
investing municipal funds in general and this City's funds in particular.
These firms must insure that the portion of the portfolio under their
management complies with various concentration and other constraints
specified herein, and contractually agree to conform to all provisions of
governing law and the collateralization and other requirements of this
Policy. Selection and retention of broker/dealers by investment advisors
shall be at their sole discretion and dependent upon selection and retention
criteria as stated in the Uniform Application for Investment Advisor
Registration and related Amendments (SEC Form ADV 2A).
4. Internal Controls
The Finance Director is responsible for establishing and maintaining a
system of internal controls. The internal controls shall be designed to
prevent losses of public funds arising from fraud, employee error, and
misrepresentation by third parties, unanticipated changes in financial
markets, or imprudent action by City employees and officers. The internal
structure shall be designed to provide reasonable assurance that these
objectives are met. The concept of reasonable assurance recognizes that (1)
the cost of a control should not exceed the benefits likely to be derived, and
(2) the valuation of costs and benefits requires estimates and judgments by
management.
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D. BANKING SERVICES
Banking services for the City shall be provided by FDIC insured banks approved
to provide depository and other banking services. To be eligible, a bank shall
qualify as a depository of public funds in the State of California as defined in
California Government Code Section 53630.5 and shall secure deposits in excess of
FDIC insurance coverage in accordance with California Government Code Section
53652.
E. BROKER/ DEALERS
In the event that an investment advisor is not used to purchase securities, the City
will select broker/ dealers on the basis of their expertise in public cash
management and their ability to provide service to the City's account.
Each approved broker/ dealer must possess an authorizing certificate from the
California Commissioner of Corporations as required by Section 25210 of the
California Corporations Code.
To be eligible, a firm must meet at least one of the following criteria:
1. Be recognized as Primary Dealers by the Federal Reserve Bank of New York
or have a primary dealer within their holding company structure, or
2. Report voluntarily to the Federal Reserve Bank of New York, or
3. Qualify under Securities and Exchange Commission (SEC) Rule 156-1
(Uniform Net Capital Rule).
F. SAFEKEEPING AND CUSTODY OF ASSETS
The Finance Director shall select one or more banks to provide safekeeping and
custodial services for the City. A Safekeeping Agreement approved by the City
shall be executed with each custodian bank prior to utilizing that bank's
safekeeping services.
Custodian banks will be selected on the basis of their ability to provide services
for the City's account and the competitive pricing of their safekeeping related
services.
The purchase and sale of securities and repurchase agreement transactions shall
be settled on a delivery versus payment basis. All securities shall be perfected in
the name of the City. Sufficient evidence to title shall be consistent with modern
investment, banking and commercial practices.
All investment securities, except non-negotiable Certificates of Deposit, Money
Market Funds and local government investment pools, purchased by the City will
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be delivered by book entry and will be held in third -party safekeeping by a City
approved custodian bank, its correspondent bank or its Depository Trust
Company (DTC) participant account.
All Fed wireable book entry securities owned by the City shall be held in the
Federal Reserve system in a customer account for the custodian bank which will
name the City as "customer."
All DTC eligible securities shall be held in the custodian bank's DTC participant
account and the custodian bank shall provide evidence that the securities are held
for the City as "customer."
G. AUTHORIZED INVESTMENTS
All investments and deposits of the City shall be made in accordance with
California Government Code Sections 16429.1, 53600-53609 and 53630-53686. Any
revisions or extensions of these code sections will be assumed to be part of this
Policy immediately upon being enacted. The City has further restricted the eligible
types of securities and transactions. The foregoing list of authorized securities and
transactions shall be strictly interpreted. Any deviation from this list must be pre -
approved by resolution of the City Council. In the event an apparent discrepancy
is found between this Policy and the Government Code, the more restrictive
parameter(s) will take precedence.
Where this section specifies a percentage limitation for a particular security type,
that percentage is applicable only at the date of purchase.
Investments Specifically Permitted
a) United States Treasury, bills, notes, or bonds with a final maturity not
exceeding five years from the date of trade settlement. There is no
limitation as to the percentage of the City's portfolio that may be
invested in this category.
b) Federal Instrumentality (government-sponsored enterprise)
debentures, discount notes, callable and step-up securities, with a
final maturity not exceeding five years from the date of trade
settlement. There is no limitation as to the percentage of the portfolio
that can be invested in this category.
c) Federal Agency Obligations for which the full faith and credit of the
United States are pledged for the payment of principal and interest
and which have a final maturity not exceeding five years from the
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date of trade settlement. There is no limitation as to the percentage
of the portfolio that can be invested in this category.
d) Mortgage-backed Securities, Collateralized Mortgage Obligation
,(CMO) and Asset-backed Securities limited to mortgage-backed
pass-through securities issued by a US government agency, or
consumer receivable pass-through certificates or bonds with a final
maturity not exceeding five years from the date of trade
settlement. Securities eligible for investment under this subdivision
shall be issued by an issuer whose debt is rated in at least the "A"
category or the equivalent by a Nationally Recognized Statistical
Rating Organization (NRSRO). The security itself shall be rated at
least "AAA" or the equivalent by an NRSRO. No more than five
percent (5%) of the City's total portfolio shall be invested in any one
issuer of mortgage-backed and asset-backed securities listed above,
and the aggregate investment in mortgage-backed and asset-backed
securities shall not exceed twenty percent (20%) of the City's total
portfolio.
e) Medium -Term Notes issued by corporations organized and
operating within the United States or by depository institutions
licensed by the United States or any state and operating within the
United States, with a final maturity not exceeding five years from the
date of trade settlement, and rated in at least the "A" category or the
equivalent by an NRSRO. No more than five percent (5%) of the
City's total portfolio shall be invested in any one issuer of medium-
term notes, and the aggregate investment in medium-term notes
shall not exceed thirty percent (30%) of the City's total portfolio.
f) Municipal Bonds: including bonds issued by the City of Newport
Beach, including bonds payable solely out of the revenues from a
revenue-producing property owned, controlled, or operated by the
City or by a department, board, agency, or authority of the City.
State of California registered warrants or treasury notes or bonds,
including bonds payable solely out of the revenues from a revenue-
producing property owned, controlled, or operated by the state or
by a department, board, agency, or authority of the state.
Registered treasury notes or bonds of any of the other 49 states in
addition to California, including bonds payable solely out of the
revenues from a revenue producing property owned, controlled, or
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operated by a state or by a department, board, agency, or authority
of any of the other 49 states, in addition to California.
Bonds, notes, warrants, or other evidences of indebtedness of a local
agency within California, including bonds payable solely out of the
revenues from a revenue-producing property owned, controlled, or
operated by the local agency, or by a department, board, agency, or
authority of the local agency.
In addition, these securities must be rated in at least the "A" category
or the equivalent by a NRSRO with maturities not exceeding five
years from the date of trade settlement. No more than five percent
(5%) of the City's total portfolio shall be invested in any one
municipal issuer. In addition, the aggregate investment in municipal
bonds may not exceed thirty percent (30%) of the portfolio.
g) Non-negotiable Certificates of Deposit and savings deposits with a
maturity not exceeding two years from the date of trade settlement,
in FDIC insured state or nationally chartered banks or savings banks
that qualify as a depository of public funds in the State of California
as defined in California Government Code Section 53630.5. Deposits
exceeding the FDIC insured amount shall be secured pursuant to
California Government Code Section 53652. No one issuer shall
exceed more than five percent (5%) of the portfolio, and investment
in negotiable and nonnegotiable certificates of deposit shall be
limited to thirty percent (30%) of the portfolio combined.
h) Negotiable Certificates of Deposit only with a nationally or state -
chartered bank, a savings association or a federal association (as
defined by Section 5102 of the Financial Code), a state or federal
credit union, or by a federally licensed or state -licensed branch
of a foreign bank whose senior long-term debt is rated in at least
the "A" category, or the equivalent, or short-term debt is rated at
least "A-1" or the equivalent by an NRSRO and having assets in
excess of $10 billion, so as to ensure security and a large, well-
established secondary market. Ease of subsequent marketability
should be 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 five percent (5%) of the portfolio, and maturity
shall not exceed two years. Investment in negotiable and non-
negotiable certificates of deposit shall be limited to thirty percent
(30%) of the portfolio combined.
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i) Prime Commercial Paper with a maturity not exceeding 270 days
from the date of trade settlement that is rated "A-1", or the
equivalent, by an NRSRO. The entity that issues the commercial
paper shall meet all of the following conditions in either sub-
paragraph i. or sub -paragraph ii. below:
L The entity shall (1) be organized and operating in the United
States as a general corporation, (2) have total assets in excess
of $500,000,000 and (3) have debt other than commercial
paper, if any, that is rated in at least the "A" category or the
equivalent by an NRSRO.
ii. The entity shall (1) be organized within the United States as a
special purpose corporation, trust, or limited liability
company, (2) have program wide credit enhancements,
including, but not limited to, over collateralization, letters of
credit or surety bond and (3) have commercial paper that is
rated at least "A-1" or the equivalent, by an NRSRO.
iii. No more than five percent (5%) of the City's total portfolio
shall be invested in the commercial paper of any one issuer,
and the aggregate investment in commercial paper shall not
exceed twenty-five percent (25%) of the City's total portfolio.
j) Eligible Banker's Acceptances with a maturity not exceeding 180
days from the date of trade settlement, drawn on and accepted by a
commercial bank whose senior long-term debt is rated in at least the
"A" category or the equivalent by an NRSRO at the time of purchase.
Banker's Acceptances shall be rated at least "A-1", or the equivalent
at the time of purchase by an NRSRO. If the bank has senior debt
outstanding, it must be rated in at least the "A" category or the
equivalent by an NRSRO. The aggregate investment in banker's
acceptances shall not exceed forty percent (40%) of the City's total
portfolio, and no more than five percent (5%) of the City's total
portfolio shall be invested in banker's acceptances of any one bank.
k) Repurchase Agreements and Reverse Repurchase Agreements with
a final termination date not exceeding 30 days collateralized by U.S.
Treasury obligations or Federal Instrumentality securities listed in
items 1 and 2 above with the maturity of the collateral not exceeding
ten years. For the purpose of this section, the term collateral shall
mean purchased securities under the terms of the City's approved
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Master Repurchase Agreement. The purchased securities shall have
a minimum market value including accrued interest of one hundred
and two percent (102%) of the dollar value of the funds borrowed.
Collateral shall be held in the City's custodian bank, as safekeeping
agent, and the market value of the collateral securities shall be
marked -to -the -market daily.
Repurchase Agreements and Reverse Repurchase Agreements shall
be entered into only with broker/ dealers and who are recognized as
Primary Dealers with the Federal Reserve Bank of New York, or with
firms that have a Primary Dealer within their holding company
structure. Primary Dealers approved as Repurchase Agreement
counterparties shall have a short-term credit rating of at least "A-1"
or the equivalent and a long-term credit rating of at least "A" or the
equivalent. Repurchase agreement counterparties shall execute a
City approved Master Repurchase Agreement with the City. The
Finance Director shall maintain a copy of the City's approved Master
Repurchase Agreement and a list of the broker/ dealers who have
executed same.
In addition, the City must own assets for more than 30 days before
they can be used as collateral for a reverse repurchase
agreement. No more than ten percent (10%) of the portfolio can be
involved in reverse repurchase agreements.
1) State of California's Local Agency Investment Fund (LAIF),
pursuant to California Government Code Section 16429.1.
m) County Investment Funds: Los Angeles County provides a service
similar to LAIF for municipal and other government entities outside
of Los Angeles County, including the City. Investment in this pool
is intended to be used as a temporary repository for short-term funds
used for liquidity purposes. The Finance Director shall maintain on
file appropriate information concerning the county pool's current
investment policies, practices, and performance, as well as its
requirements for participation, including, but not limited to,
limitations on deposits or withdrawals and the composition of the
portfolio. At no time shall more than five percent (5%) of the City's
total investment portfolio be placed in this pool.
n) Mutual Funds and Money Market Mutual Funds registered under
the Investment Company Act of 1940, provided that:
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i. MUTUAL FUNDS that invest in the securities and obligations as
authorized under California Government Code, Section 53601(a)
to (k) and (m) to (q) inclusive and that meet either of the
following criteria:
1) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two (2) NRSROs;
or
2) Have retained an investment adviser registered or exempt
from registration with the Securities and Exchange
Commission with not less than five years' experience
investing in the securities and obligations authorized by
California Government Code, Section 53601 and with assets
under management in excess of $500 million.
3) No more than 10% of the total portfolio may be invested in
shares of any one mutual fund.
ii. MONEY MARKET MUTUAL FUNDS registered with the Securities
and Exchange Commission under the Investment Company Act
of 1940 and issued by diversified management companies and
meet either of the following criteria:
1) Have attained the highest ranking or the highest letter and
numerical rating provided by not less than two (2) NRSROs;
or
2) Have retained an investment adviser registered or exempt
from registration with the Securities and Exchange
Commission with not less than five years' experience
managing money market mutual funds with assets under
management in excess of $500 million.
3) No more than 20% of the total portfolio may be invested in
Money Market Mutual Funds.
iii. No more than 20% of the total portfolio may be invested in these
securities.
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o) Supranationals which are United States dollar denominated senior
unsecured unsubordinated obligations issued or unconditionally
guaranteed by the International Bank for Reconstruction and
Development (IBRD), International Finance Corporation (IFC), or
Inter -American Development Bank (IADB), with a maximum
remaining maturity of five years or less, and eligible for purchase
and sale within the United States. Investments under this paragraph
shall be rated in the "AA" category, its equivalent, or better by at least
one NRSRO.
No more than ten percent (10%) of the City's total portfolio shall be
invested in any one issuer of supranational obligations. Purchases
of supranational obligations shall not exceed twenty percent (20%)
of the investment portfolio of the City.
2. Investments Specifically Not Permitted
Any security type or structure not specifically approved by this policy is
hereby prohibited. Security types, which are thereby prohibited include,
but are not limited to: "exotic" derivative structures such as range notes,
dual index notes, inverse floating rate notes, leveraged or de -leveraged
floating rate notes, interest only strips that are derived from a pool of
mortgages and any security that could result in zero interest accrual if held
to maturity, or any other complex variable or structured note with an
unusually high degree of volatility risk.
The City shall not invest funds with the Orange County Pool.
3. Exceptions to Prohibited and Restricted Investments
The City shall not be required to sell securities prohibited or restricted in
this policy, or any future policies, or prohibited or restricted by new State
regulations, if purchased prior to their prohibition and/or restriction.
Insofar as these securities provided no notable credit risk to the City,
holding of these securities until maturity is approved. At maturity or
liquidation, such monies shall be reinvested as provided by this policy.
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H. INVESTMENT PARAMETERS
1. Diversification
The City shall diversify its investments to avoid incurring unreasonable
risks inherent in over -investing in specific instruments, individual financial
institutions or maturities. As such, no more than five percent (5%) of the
City's portfolio may be invested in the instruments of any one issuer, except
governmental issuers, supranationals, investment pools, mutual funds and
money market funds. This restriction does not apply to any type of Federal
Instrumentality or Federal Agency Security listed in Sections G1 b and G1
c above. Nevertheless, the asset allocation in the investment portfolio
should be flexible depending upon the outlook for the economy, the
securities markets and the City's anticipated cash flow needs.
2. Maximum Maturities
To the extent possible, investments shall be matched with anticipated cash
flow requirements and known future liabilities. The City will not invest in
securities maturing more than five years from the date of trade settlement,
unless the City Council has by resolution granted authority to make such
an investment at least three months prior to the date of investment.
3. Credit Quality
The City shall not purchase any security rated "Al" and / or "A+" or below
if that security has been placed on "credit watch" for a possible downgrade
by an NRSRO.
Each investment manager will monitor the credit quality of the securities in
their respective portfolio. In the event a security held by the City is the
subject of a rating downgrade which brings it below accepted minimums
specified herein, or the security is placed on negative credit watch, where
downgrade could result in a rate drop below acceptable levels, the
investment advisor who purchased the security will immediately notify the
Finance Director. The City shall not be required to immediately sell such
securities. The course of action to be followed will then be decided on a
case by case basis, considering such factors as the reason for the rate drop,
prognosis for recovery or further drop, and market price of the security.
The City Council will be advised of the situation and intended course of
action.
4. Competitive Transactions
Investment advisors shall make best effort to price investment transactions
on a competitive basis with broker/dealers selected consistent with their
practices disclosed in form ADV 2A filed with the SEC. Where possible, at
least three broker/ dealers shall be contacted for each transaction and their
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bid or offering prices shall be recorded. If there is no other readily available
competitive offering, the investment advisor shall make their best efforts to
document quotations for comparable or alternative securities. If qualitative
characteristics of a transaction, including, but not limited to, complexity of
the transaction, or sector expertise of the broker, prevent a competitive
selection process, investment advisors shall use brokerage selection
practices as described above.
I. PORTFOLIO PERFORMANCE
The investment portfolio shall be designed to attain a market rate of return
throughout budgetary and economic cycles, taking into account prevailing market
conditions, risk constraints for eligible securities, and cash flow requirements. The
performance of the City's investments shall be compared to the total return of a
benchmark that most closely corresponds to the portfolio's duration, universe of
allowable securities, risk profile, and other relevant characteristics. When
comparing the performance of the City's portfolio, its rate of return will be
computed consistent with Global Investment Performance Standards (GIPS).
J. REPORTING
Monthly, the Finance Director shall produce a treasury report of the investment
portfolio balances, transactions, risk characteristics, earnings, and performance
results of the City's investment portfolio available to City Council and the public
on the City's Website. The report shall include the following information:
1. Investment type, issuer, date of maturity, par value and dollar amount
invested in all securities, and investments and monies held by the City;
2. A description of the funds, investments and programs;
3. A market value as of the date of the report (or the most recent valuation as
to assets not valued monthly) and the source of the valuation;
4. A statement of compliance with this Policy or an explanation for non-
compliance
K. INVESTMENT POLICY COMPLIANCE AND ADOPTION
1. Compliance
Any deviation from the policy shall be reported to Finance Committee as
soon as practical, but no later than the next scheduled Finance Committee
meeting. Upon recommendation of the Finance Committee, the Finance
Director shall review deviations from policy with the City Council.
2. Adoption
The Finance Director shall review the Investment Policy with the Finance
Committee at least annually to ensure its consistency with the overall
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objectives of preservation of principal, liquidity and return, and its
relevance to current law and financial and economic trends.
The Finance Director shall review the Investment Policy with City Council
at a public meeting if there are changes recommended to the Investment
Policy.
This Policy was endorsed and adopted by the City Council of the City of
Newport Beach on September 8, 2015. It replaces any previous investment
policy or investment procedures of the City.
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
Amended - January 24,1994
Amended - January 9,1995
Amended - April 22,1996
Corrected - January 27,1997
Amended - February 24,1997
Amended - May 26,1998
Reaffirmed - March 22,1999
Reaffirmed - March 14, 2000
Amended & Reaffirmed - May 8, 2001
Amended & Reaffirmed - April 23, 2002
Amended & Reaffirmed - April 8, 2003
Amended & Reaffirmed - April 13, 2004
Amended & Reaffirmed - September 13, 2005
Amended - August 11, 2009
Amended & Reaffirmed - August 10, 2010
Amended & Reaffirmed - September 28, 2010
Reaffirmed - June 28, 2011
Amended & Reaffirmed - October 9, 2012
Amended - August 13, 2013
Amended - September 8, 2015
Amended - March 28, 2017
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EXHIBIT B
SCOPE OF SERVICES
Consultant shall perform the following services:
1. Provide investment research and supervision of the City's assets under
management and conduct a continuous program of investment, evaluation and,
when appropriate, sale and reinvestment of the City's Managed Funds assets.
2. Continuously monitor investment opportunities of the City's Funds.
3. Provide discretionary investment advisory services which conform with state law,
federal law, the City's investment policy and the Prudent Expert Standard of care.
4. Annually review investment policy and compare to applicable laws. Recommend
appropriate amendments annually to comply with applicable laws or minimize
risk with respect to stated investment objectives.
5. Develop and execute an investment strategy consistent with the City's stated
investment policy objectives and parameters, applicable laws and an
understanding of the City's cash flow needs
6. Establish an appropriate performance benchmark and compare historical results
to benchmark.
7. Regularly ensure portfolio structure matches the City's stated investment
objectives.
8. Provide monthly reporting of each portfolio under management showing deposits,
withdrawals, purchases and sales (or maturities) of investments, earnings
received, and the value of assets held on the last business day of the month. The
statement shall be in the format and manner that is mutually agreed upon in
writing by the Consultant and the City.
9. Provide credit analysis of investment instruments in portfolio.
10. Provide assurance of portfolio compliance with applicable policies and laws.
11. Immediately apprise Project Administrator of all instances of non-compliance with
applicable policies and laws.
12.Attend meetings with government officials as needed.
13. Discuss cash flow needs and market strategy with Project Administrator
quarterly.
14. Assist the City with cash flow/maturity analysis as needed.
15.Observe the instructions of the City with respect to broker/dealers who are
approved to execute transactions involving the City's Managed Funds and in the
absence of such instructions will engage broker/dealers who are reputable,
qualified and financially sound. In connection with the selection of such brokers
and dealers and the placing of such orders, the Consultant is directed to seek for
the City the most favorable execution and price.
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16. Regularly evaluate market risk and develop strategies that minimize the impact
on the portfolio.
17. Immediately apprise staff of significant market events impacting portfolio security
or performance.
18. Interact and communicate effectively with the City's Custodian bank. All
securities shall be perfected in the name of the City. Sufficient evidence to title
shall be consistent with modern investment, banking and commercial practices.
19.Assist in credit monitoring of financial institutions with which the City conducts
business.
20. Exercise diligence in the selection and use of broker dealers.
21.AII investment transactions shall be conducted competitively. Documentation of
recorded bid or offering prices shall be maintained for a period of at least three
(3) years.
22. Provide for online access to and electronic delivery of monthly statements.
23. Vote proxies on behalf of City unless otherwise instructed.
24. Value securities held in portfolios managed by Consultant no less than monthly.
ADDITIONAL TERMS
1. Proxy Voting. Consultant has adopted and implemented written policies and
procedures and will provide City with a copy of the proxy voting procedures upon
request. Consultant will provide information regarding how City's proxies were
voted upon request.
2. Valuation. Securities or investments in the portfolio will be valued in a manner
determined in good faith by Consultant to reflect fair market value.
3. Custody of Securities and Funds. Consultant shall not have custody or
possession of the funds or securities that City has placed under its management.
City shall appoint a custodian to take and have possession of its assets. City
shall compare statements received from the appointed custodian to statements
received from Consultant.
4. Investment Advice. City recognizes that the opinions, recommendations and
actions of Consultant will be based on information deemed by it to be reliable, but
not guaranteed to or by it. Provided that Consultant acts in good faith, City
agrees that Consultant will not in any way be liable for any error in judgment or
for any act or omission, except as may otherwise be provided for under the
Federal Securities laws, state law or other applicable laws.
5. Other Clients. It is further understood that Consultant may be acting in a similar
capacity for other institutional and individual clients, and that investments and
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reinvestments for City's portfolio may differ from those made or recommended
with respect to other accounts and clients even though the investment objectives
may be the same or similar. Accordingly, it is agreed that Consultant will have no
obligation to purchase or sell for City's account any securities, which it may
purchase or sell for other clients.
6. Receipt of Brochure and Privacy Policy. City hereby acknowledges receipt of the
disclosure statement or "brochure" and "brochure supplement" also known as
Part 2A and Part 2B of Form ADV, required to be delivered pursuant to Rule 204-
3 of the Investment Advisers Act of 1940 (Brochure). City further acknowledges
receipt of Consultant's Privacy Policy, as required by Regulation S -P.
7. Additional Services. If and to the extent that the City requests the Consultant to
render services other than those to be rendered by the Consultant according to
this Agreement, such additional services shall be compensated separately on
terms to be agreed upon between the City and the Consultant.
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EXHIBIT C
SCHEDULE OF BILLING RATES
Consultant shall only charge fees on assets under its direct management. Funds not
under Consultant's management, such as pooled investment vehicles, will be excluded
from fee calculations. Since the Consultant calculates fees based on the average balance
of assets under its direct management (market value including accrued interest), fees will
fluctuate based on portfolio value.
Consultant's fee schedule is all-inclusive for the services that Consultant provides,
including meetings, personal visits, and educational offerings for City staff, as well as
investment advisory services described in the Agreement.
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EXHIBIT D
INSURANCE REQUIREMENTS — PROFESSIONAL SERVICES
Provision of Insurance. Without limiting Consultant's indemnification of City, and
prior to commencement of Work, Consultant shall obtain, provide and maintain at
its own expense during the term of this Agreement, policies of insurance of the
type and amounts described below and in a form satisfactory to City. Consultant
agrees to provide insurance in accordance with requirements set forth here. If
Consultant uses existing coverage to comply and that coverage does not meet
these requirements, Consultant agrees to amend, supplement or endorse the
existing coverage.
2. Acceptable Insurers. All insurance policies shall be issued by an insurance
company currently authorized by the Insurance Commissioner to transact
business of insurance in the State of California, with an assigned policyholders'
Rating of A- (or higher) and Financial Size Category Class VII (or larger) in
accordance with the latest edition of Best's Key Rating Guide, unless otherwise
approved by the City's Risk Manager.
3. Coverage Requirements.
A. Workers' Compensation Insurance. Consultant shall maintain Workers'
Compensation Insurance, statutory limits, and Employer's Liability
Insurance with limits of at least one million dollars ($1,000,000) each
accident for bodily injury by accident and each employee for bodily injury by
disease in accordance with the laws of the State of California, Section 3700
of the Labor Code.
Consultant shall submit to City, along with the certificate of insurance, a
Waiver of Subrogation endorsement in favor of City, its City Council, boards
and commissions, officers, agents, volunteers and employees.
B. General Liability Insurance. Consultant shall maintain commercial general
liability insurance, and if necessary umbrella liability insurance, with
coverage at least as broad as provided by Insurance Services Office form
CG 00 01, in an amount not less than one million dollars ($1,000,000) per
occurrence, two million dollars ($2,000,000) general aggregate. The policy
shall cover liability arising from premises, operations, personal and
advertising injury, and liability assumed under an insured contract (including
the tort liability of another assumed in a business contract).
C. Automobile Liability Insurance. Consultant shall maintain automobile
insurance at least as broad as Insurance Services Office form CA 00 01
covering bodily injury and property damage for all activities of Consultant
arising out of or in connection with Work to be performed under this
Agreement, including coverage for any owned, hired, non -owned or rented
vehicles, in an amount not less than one million dollars ($1,000,000)
combined single limit each accident.
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D. Professional Liability (Errors & Omissions) Insurance. Consultant shall
maintain professional liability insurance that covers the Services to be
performed in connection with this Agreement, in the minimum amount of ten
million dollars ($10,000,000) per claim and in the aggregate. Any policy
inception date, continuity date, or retroactive date must be before the
Effective Date of this Agreement and Consultant agrees to maintain
continuous coverage through a period no less than three years after
completion of the Services required by this Agreement.
E. Fidelity Insurance. Consultant shall maintain fidelity insurance that covers
the Services to be performed in connection with this Agreement, in the
minimum amount of five million dollars ($5,000,000) limit per claim.
4. Other Insurance Requirements. The policies are to contain, or be endorsed to
contain, the following provisions:
A. Waiver of Subrogation. All insurance coverage maintained or procured
pursuant to this Agreement shall be endorsed to waive subrogation against
City, its City Council, boards and commissions, officers, agents, volunteers
and employees or shall specifically allow Consultant or others providing
insurance evidence in compliance with these requirements to waive their
right of recovery prior to a loss. Consultant hereby waives its own right of
recovery against City, and shall require similar written express waivers from
each of its subconsultants.
B. Additional Insured Status. All liability policies including general liability,
excess liability, pollution liability, and automobile liability, if required, but not
including professional liability, shall provide or be endorsed to provide that
City, its City Council, boards and commissions, officers, agents, volunteers
and employees shall be included as insureds under such policies.
C. Primary and Non Contributory. All liability coverage shall apply on a primary
basis and shall not require contribution from any insurance or self-insurance
maintained by City.
D. Notice of Cancellation. All policies shall provide City with thirty (30)
calendar days' notice of cancellation (except for nonpayment for which ten
(10) calendar days' notice is required) or nonrenewal of coverage for each
required coverage.
5. Additional Agreements Between the Parties. The parties hereby agree to the
following:
A. Evidence of Insurance. Consultant shall provide certificates of insurance to
City as evidence of the insurance coverage required herein, along with a
waiver of subrogation endorsement for workers' compensation and other
endorsements as specified herein for each coverage. Insurance certificates
and endorsement must be approved by City's Risk Manager prior to
commencement of performance. Current certification of insurance shall be
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kept on file with City at all times during the term of this Agreement. City
reserves the right to require complete, certified copies of all required
insurance policies, at any time.
B. City's Right to Revise Requirements. City reserves the right at any time
during the term of the Agreement to change the amounts and types of
insurance required by giving Consultant sixty (60) calendar days' advance
written notice of such change. If such change results in substantial
additional cost to Consultant, City and Consultant may renegotiate
Consultant's compensation.
C. Enforcement of Agreement Provisions. Consultant acknowledges and
agrees that any actual or alleged failure on the part of City to inform
Consultant of non-compliance with any requirement imposes no additional
obligations on City nor does it waive any rights hereunder.
D. Requirements not Limiting. Requirements of specific coverage features or
limits contained in this Section are not intended as a limitation on coverage,
limits or other requirements, or a waiver of any coverage normally provided
by any insurance. Specific reference to a given coverage feature is for
purposes of clarification only as it pertains to a given issue and is not
intended by any party or insured to be all inclusive, or to the exclusion of
other coverage, or a waiver of any type. If the Consultant maintains higher
limits than the minimums shown above, the City requires and shall be
entitled to coverage for higher limits maintained by the Consultant. Any
available insurance proceeds in excess of the specified minimum limits of
insurance and coverage shall be available to the City.
E. Self-insured Retentions. Any self-insured retentions must be declared to
and approved by City. City reserves the right to require that self-insured
retentions be eliminated, lowered, or replaced by a deductible. Self-
insurance will not be considered to comply with these requirements unless
approved by City.
F. City Remedies for Non -Compliance. If Consultant or any subconsultant fails
to provide and maintain insurance as required herein, then City shall have
the right but not the obligation, to purchase such insurance, to terminate this
Agreement, or to suspend Consultant's right to proceed until proper
evidence of insurance is provided. Any amounts paid by City shall, at City's
sole option, be deducted from amounts payable to Consultant or reimbursed
by Consultant upon demand.
G. Timely Notice of Claims. Contractor shall give City prompt and timely notice
of claims made or suits instituted that arise out of or result from Contractor's
performance under this Contract, and that involve or may involve coverage
under any of the required liability policies. City assumes no obligation or
liability by such notice, but has the right (but not the duty) to monitor the
handling of any such claim or claims if they are likely to involve City.
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H. Consultant's Insurance. Consultant shall also procure and maintain, at its
own cost and expense, any additional kinds of insurance, which in its own
judgment may be necessary for its proper protection and prosecution of the
Work.
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