City Council Subcommittee Agendas and Minutes

Finance Subcommittee Agenda City of Campbell, 70 N. First Street, Campbell, California This Special Meeting of the Finance Subcommittee will be conducted in person and is compliant with provisions of the Brown Act. Members of the public may attend this meeting in person at Campbell City Hall. Public comment will also be accepted via email at Finance@cityofcampbell.com prior to the meeting. Please indicate in the subject line “FOR PUBLIC COMMENT.” Written comments received by 2:00 p.m. on the day before the meeting will be posted on the website and distributed to the Subcommittee before the meeting. SPECIAL MEETING OF THE CAMPBELL FINANCE SUB-COMMITTEE Friday, February 23, 2024 1:30 p.m. Campbell City Hall Ralph Doetsch Conference Room 70 North First Street, Campbell CA 95008 CALL TO ORDER PUBLIC COMMENTS 1. Selection of Investment Advisory Firm a. Selection of Investment Advisory Firm Recommended Action: Provide feedback and recommendation on selection of an Investment Advisory Firm for Council consideration at their March 5, 2024 meeting. ADJOURN In compliance with the Americans with Disabilities Act, assistive listening devices are available for meetings upon request with advanced notice. If you require accommodation to participate in the meeting, please contact Will Fuentes in the Finance Department, at willf@campbellca.gov or (408) 866-2113. MEMORANDUM City of Campbell Finance Department To: Finance Sub-Committee Date: February 23, 2024 From: Will Fuentes, Finance Director Subject: Selection of Investment Advisory Firm RECOMMENDED ACTION Provide feedback and recommendation on selection of an Investment Advisory Firm for Council consideration at their March 5, 2024 meeting. BACKGROUND On February 9, 2024, the Finance Subcommittee interviewed three (3) firms to provide Investment Advisory Services to the City of Campbell: • Chandler Asset Management • PFM Asset Management • Meeder Public Funds Five (5) firms in total provided responses to a Request for Proposal (RFP) for Investment Advisory Services issued to the public on November 9, 2023. The three (3) firms interviewed were scored the highest by staff during a pre-interview evaluation process and deemed the best able to meet the City’s needs. Based on feedback, discussion, and evaluation after the February 9th interview process, the Finance Subcommittee and staff agreed that Chandler Asset Management and PFM Asset Management were the best able to meet the City’s needs; with Meeder Public Funds eliminated from consideration As such, the Finance Subcommittee asked staff to check references of the top two (2) firms and compare their fee schedules and investment return performance so as to develop a final staff recommendation. For reference, as of the quarter ending September 30, 2023, the City’s total pooled investment portfolio equaled $93.21 million; managed exclusively by City staff including the Finance Director and one (1) Accountant. Additionally, of the $93.21 million invested, $47.65 million is restricted Measure O General Obligation (GO) bond proceeds to renovate the City’s Library and to construct a new City Police Station. DISCUSSION Reference Checks  Selection of Investment Advisory Firm February 23, 2024 Page 2 of 5 Since the February 9th interview process, staff sent the following questions to public agency references provided by Chandler Asset Management and PFM Asset Management: 1) Who do you primarily work with at firm X and have you been satisfied with their service, approach to investment management, communication and responsiveness, and expertise? 2) How satisfied are you with firm X’s reports, report frequency, and online reporting portal? 3) How satisfied are you with the incremental investment returns that firm X is able to produce relative to their fees? 4) Other than investment returns, what is the primary value that firm X provides to your city and team? 5) Is there anything else that you’d like to share about firm X that would assist Campbell in making a final selection of an Investment Advisory firm? Based on reference responses, staff is confident that both Chandler and PFM provide excellent service and are good value propositions; providing not only strong investment returns compared to applicable benchmarks and fees charged, but also additional expertise and resources to internal staff who often have limited capacity. The latter is especially true when evaluating the credit worthiness and risk profile of investment opportunities relative to their expected return. Fee Comparison In addition to reference checks, staff also compared the typical fees of both firms, given various levels of investment funds to potentially be managed. This comparison is shown in Table 1 below:  Selection of Investment Advisory Firm February 23, 2024 Page 3 of 5 Table 1 - Fee Schedule Comparison Chandler Asset Management Assets under Management Range Start Range End Rate $ - $ 25,000,000 0.001 $ 25,000,000 $ 50,000,000 0.0008 $ 50,000,000 $ 125,000,000 0.0006 $ 125,000,000 ∞ 0.0004 City Investment Assets Fee $ 25,000,000 $ 25,000 $ 50,000,000 $ 45,000 Likely range of $ 75,000,000 $ 60,000 assets $ 100,000,000 $ 75,000 $ 93,210,000 $ 70,926 Assets listed in RFP PFM Asset Management Assets under Management Range Start Range End Rate $ - $ 50,000,000 0.0009 $ 50,000,000 $ 100,000,000 0.0007 $ 100,000,000 $ 200,000,000 0.0006 $ 200,000,000 $ 300,000,000 0.0005 $ 300,000,000 ∞ 0.0004 City Investment Assets Fee $ 25,000,000 $ 22,500 $ 50,000,000 $ 45,000 Likely range of $ 75,000,000 $ 62,500 assets $ 100,000,000 $ 80,000 $ 93,210,000 $ 75,247 Assets listed in RFP While each firm provides a slightly different fee structure, both are rather close at all levels shown above. Please note that the RFP listed City investment assets of $93.21 million, but $47.65 million of this is restricted Measure O General Obligation (GO) bond proceeds to renovate the City’s Library and to construct a new City Police Station. As those bond proceeds are spent down on project costs, the City will normalize around a total investment pool of approximately $50 million or less. Assuming an investment pool of $50 million, the fees for both Chandler and PFM would be $45,000 annually. Please note that both firms only charge fees on investment funds managed and do not charge fees for investment funds not directly under their management, including Local Government Investment Pools such as LAIF and CAMP.  Selection of Investment Advisory Firm February 23, 2024 Page 4 of 5 Investment Return Comparison And lastly, staff also compared the investment performance of both firms; gross and net of fees. Table 2 below shows the Composite Performance of Chandler over a one, three, five, and ten year period as well as since inception of their services in 1988: Table 2 – Chandler Composite Performance Table 3 below shows the Composite Performance of PFM over a one, three, five, seven, and ten year period as well through Q3 of calendar year 2023: Table 3 – PFM Composite Performance  Selection of Investment Advisory Firm February 23, 2024 Page 5 of 5 Since it is best to measure investment performance over an extended period of time, staff evaluated short and long term investment options shown above over the 10 year period. Using this evaluation criteria, both firms are rather close in their proven performance. Final Staff Recommendation Based on the pre-interview evaluation process, the interview process, and the post- interview evaluation process detailed above, staff feels that Chandler Asset Management is the best able to provide Investment Advisory Services to the City of Campbell in the short and long term. Both firms are excellent in what they do, but staff rated Chandler slightly higher when all factors are considered and feels that it will be able to partner well with the Chandler team to meet the City’s investment objectives of safety, liquidity, and return; in that order. Other factors favorable to Chandler included the continuity of their team, the number of clients in the Bay Area and State comparable to Campbell, and the sole focus on public clients as a smaller, privately held firm. And lastly, while it is not the City’s primary objective to obtain return, based on Chandler’s long-term performance, the incremental returns generated should be able to fully cover annual fees expected annual fees of $45,000. Thus, staff recommends that a contract award be made to Chandler Asset Management at the March 5, 2024 Council meeting. Committee Members: Sergio Lopez, Vice Mayor Anne Bybee, Councilmember