MEMORANDUM TO: Mayor and Council ~/ THROUGH: James R. O'Connor, City Ma l FROM: Cynthia D. Lawson, Finance Director~ DATE: April 13, 2015 SUBJECT: Assignment of Discretionary Investment Advisory Services Agreement to The Bank of New York Mellon BACKGROUND: In 2009, the City entered into a discretionary investment advisory agreement with MBIA Capital Management Corporation, for investment management services for the City's non-pension investments (Attachment A). In 2010, MBIA Capital Management Corporation became Cutwater Asset Management. In this capacity, Cutwater manages the investment of the City's idle cash and reserves in accordance with the restrictions of Section 218.415(15), Florida Statutes and the City's investment policy statement. The City received notice that Cutwater Asset Management would become a wholly owned subsidiary of Bank of New York Mellon in early 2015 (Attachment B). Although the notice indicated that the City did not have to give 'positive' consent to this assignment, Section 14 of the terms of the City's current agreement with MBIA/Cutwater indicates that the City should consent to such assignment. As indicated in the notification letter, the City will continue receiving investment advisory services from Cutwater Asset Management and the agreement will continue on the same terms and conditions as those currently in effect. RECOMMENDATION: City Council approve the assignment of the City's 'Discretionary Investment Advisory Agreement' dated March 2, 2009 to BNY Mellon and authorize the City Manager to sign the letter consenting to this assignment. ANALYSIS: Strengths: Cutwater Asset Management has provided the City with effective and responsible investment management services since 2009. Weaknesses: None identified. Opportunities: The Cutwater Asset Management team has offered to work with the City to update the investment policy, with the goal of increasing the flexibility and earnings while remaining complaint with the restrictions in Florida Statutes. Threats: None identified.
ATIACHMENTA MBIA Capital Management Corp. DISCRETIONARY INVESTMENT ADVISORY AGREEMENT This Agreement, dated as of the 2nd day of March 2009 (the "Agreement"), is by and between MBIA Capital Management Corp. (the "Adviser") and the City of Vero Beach (the "Client"). The parties agree as follows: 1. APPOINTMENT The Client hereby appoints the Adviser as the investment manager of those assets designated by the Client (the "Advisory Account"). 2. SERVICES OF ADVISER By execution of this Agreement, the Adviser accepts appointment as investment manager for the Advisory Account and agrees to supervise and direct the investment of the Advisory Account in accordance with the written investment objectives, policies and restrictions of the Client from time to time. The Client shall provide the Adviser with a statement of its investment objective( s) and a statement of the investment policies and guidelines applicable to the management of the Advisory Account. The Client agrees to notify the Adviser promptly in writing of any modifications to the investment objectives, policies or restrictions applicable to the Advisory Account. The Adviser, with full discretionary authority, and consistent with the Client's investment objectives, policies and restrictions, may buy or sell securities and place orders for the execution of such transactions with or through such brokers, dealers, or issuers as the Adviser may select. The Client understands that this Agreement does not require or obligate the Adviser to provide legal or tax advice services to the Client and that the Adviser is not providing such services to the Client. 3. CLIENT REPORTING The Adviser will provide to the client on a monthly basis a report of the securities transactions executed, statement of securities holdings, and the investment income earned on the account. Quarterly reports will be furnished to the Client containing investment reports for the portfolio which provide an in-depth analysis of market conditions and interest rates, portfolio composition and sector analyses, portfolio return, and detailed securities holdings. It is agreed that the Adviser, in the maintenance of records, does not assume responsibility for the accuracy of information furnished by the Client or any other person. 4. SAFEKEEPING AND CUSTODY The Adviser will not have custody or possession of assets in the Advisory Account of the Client. The Client shall select and authorize a custodian bank or brokerage firm to hold the assets of the Advisory Account in safekeeping for the Client. The Client shall be solely responsible for all fees involved with any custodial arrangements. 5. FUNDING POLICY The Client shall from time to time inform the Adviser in writing of the funding policy applicable with respect to the Client and of its cash disbursement requirements. The Adviser shall make its investment decisions for the Advisory Account in accordance with such funding policy and requirements. The Client will provide the Adviser with no less than five (5) days notice of a substantial withdrawal (i.e. 10% of the portfolio assets) from the Advisory Account to permit the Adviser to affect an orderly liquidation of the Advisory Account's holdings. In the absence of such notice, the Adviser will use its best efforts to minimize adverse effects of such withdrawals on the Advisory Account. The Client understands that the Client bears the market risk associated with changes to such funding policy and requirements and with the termination of this Agreement. 6. ALLOCATION OF BROKERAGE When placing orders for the execution of transactions for the Advisory Account, the Adviser will take into consideration not only the available prices but also other relevant factors such as, without limitation, execution capabilities. The Adviser will exercise good faith in obtaining the best price and execution for each transaction for the Advisory Account. Page 1of4
1. FEES The compensation of the Adviser for its services under this Agreement shall be calculated and paid in accordance with the Fee Schedule in Exhibit A, as the same may be amended from time to time by mutual agreement of the Client and the Adviser. 8. LIMITATION OF LIABILITY In the performance of its services, the Adviser will not be liable for any error in judgment or any acts or omissions to act except those resulting from the Adviser's gross negligence, willful misconduct or malfeasance. Nothing herein shall in any way constitute a waiver or limitation of any right of any person under the federal and state securities laws. 9. SERVICES TO OTHER CLIENTS It is understood that the Adviser performs investment advisory services for other clients. The Client agrees that the Adviser may give advice and.take action with respect to any of its other clients which may differ from advice given, or the timing, or nature of action taken, with respect to the Advisory Account. 10. REPRESENTATIONS BY THE CLIENT The Client represents that the terms of this Agreement do not violate any obligation by which the Client is bound, whether arising by contract, operation of law, or otherwise, and that this Agreement has been duly authorized by appropriate action and is binding upon the Client in accordance with its terms. 11. ACKNOWLEDGEMENT OF RECEIPT OF BROCHURE (FORM ADV PART II) The Client hereby acknowledges receipt of the Adviser's Brtochure (Form ADV Part II) at least 48 hours prior to the date of execution of this Agreement in compliance with Rule 204-3 of the Investment Advisers Act of 1940 (the "Act"). 12. VALUATION The adviser will value the securities in the investment account based upon prices obtained from a nationally recognized independent pricing service. Where prices cannot be obtained from such an independent service, the adviser will obtain prices from dealers which make a market in the specified securities. Any other security or asset shall be valued in a manner determined in good faith by the Adviser to reflect its fair market value. 13. NOTICE All notices and other communications shall be deemed effective when received, in writing, at the address appearing below. Receipt of written notice shall be presumed if mailed postpaid by registered or certified mail, return receipt requested. Each party shall be entitled to presume the correctness of such address until notified in writing to the contrary. 14. TERMINATION; ASSIGNMENT; AMENDMENT This Agreement may be terminated at any time by either party giving to the other at least thirty (30) days' prior notice of such termination confirmed in writing. No assignment, as that term is defined in the Act, of this Agreement shall be made by either party without the consent of the other. This Agreement may be amended or modified at any time by mutual agreement in writing. 15. ADDITIONAL PROVISIONS This Agreement may be executed in two or more counterparts, each one of which shall be deemed to be an original. To the extent federal law does not apply, this Agreement shall be construed in accordance with and governed by the laws of the State of New York. This Agreement constitutes the entire agreement of the parties with respect to the management of the Advisory Account. Page 2 of 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective representatives as of the date first above written. The City of Vero Beach BY: Finance Director ADDRESS: Vero Beach City Hall 1053 20th Place Vero Beach, FL 32960 MBIA Capital Management Corp. BY: ADDRESS: 113 King Street Armonk, NY 10504 Page 3 of4
Exhibit A FEE SCHEDULE FOR INVESTMENT ADVISORY SERVICES The annual fee for providing investment advisory services for the City of Vero Beach is as follows: Annual Rate: 10 basis points or.10% The fees for investment advisory services are based on the average market value of the assets under management. A pro rata portion of the annual fee (1/4) is billed at the end of every quarter based on the average market value of the portfolio. The average quarterly market value is calculated by averaging the ending market value of portfolio holdings reported for each month during the quarter. The fee shall be payable upon receipt. Page 4 of 4
ATTACHMENT B. CUTWATER. AsSET MANAGEMENT October 15, 2014 Ms. Cynthia Lawson Finance Director City of Vero Beach Vero Beach City Hall 1053 20th Place Vero Beach, FL 32960 Dear Ms. Lawson: As announced on October 6, 2014, MBIA Inc., the owner of Cutwater Asset Management, entered into an agreement with The Bank of New York Mellon. Under this agreement, The Bank of New York Mellon has agreed to purchase all of the ownership interests of Cutwater Asset Management. The transaction is expected to be completed in early January, 2015. As you know, Cutwater Asset Management Corp. provides investment advisory services to you in connection with your account pursuant to the original Discretionary Investment Advisory Agreement entered into with MBIA Capital Management Corp. on March 2, 2009. Under the agreement with The Bank of New York Mellon, you will continue receiving your investment advisory services from Cutwater Asset Management Corp. Under the Investment Advisers Act of 1940, the acquisition of Cutwater Asset Management by The Bank of New York Mellon is considered an "assignment" of your investment advisory agreement and we are required to obtain your consent to such assignment. Please indicate your consent to the assignment of your investment advisory agreement by signing and returning the consent form below. Please note that unless you notify us within 45 days after the date of this letter that you do not consent or intend to terminate your investment advisory agreement, you will be deemed to have consented to the assignment of your investment advisory agreement. Such consent means that your investment advisory agreement with us will continue on the same terms and conditions as currently in effect, and you will continue to have the right to terminate your investment advisory agreement as provided in your agreement. We value the lasting relationship we have built with you and your organization, and we look forward to continuing to provide you with investment advisory services during this exciting event. We thank you for your continued business. -- 1 7 Jo- <:o Joseph Sevely Chief Financial Officer CUTWATER ASSET MANAGEMENT I 113 King Street, Armonk, NY 10504 I 866-766-3030 I www.cutwater.com
. CUTWATER. AsSET MANAGEMENT I hereby certify that I am authorized to consent on behalf of the client referenced above, and do hereby consent to the assignment of my advisory agreement: Date Signature Print Name Title/Capacity Please fax or email a signed copy of this consent to the attention of Bertha Lui-McKee at 914-765-3935 (fax) or bertha.lui-mckee@cutwater.com, and mail the signed original to Bertha Lui-McKee, Cutwater Investor Services Corp., 113 King Street, Armonk, NY 10504, in the enclosed pre-addressed stamped envelope. Thank you for your cooperation. CUTWATER ASSET MANAGEMENT I 113 King Street, Armonk, NY 10504 I 866-766-3030 I www.cutwater.com