CITY COUNCIL AGENDA ITEM
ACTION REQUESTED:
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Approve the award of RFP 23-159, Fixed Income Money Management Services, to Mesirow Financial Investment Management, Inc., and PFM Asset Management LLC, for an amount not to exceed $795,000 and for a five-year term
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DEPARTMENT: Finance Department
SUBMITTED BY: Rachel Mayer, Finance Director
BOARD/COMMISSION REVIEW:
The Financial Advisory Board monitors the City’s fixed-income investments and provides valuable recommendations to staff on the matter. The Board has been involved in discussions on the RFP process since late 2022. Two of its members participated in the interview phase of this RFP, and on October 30, 2023, the board supported this recommendation.
BACKGROUND:
In July 2023, the Finance Department issued RFP 23-159, Fixed Income Money Management Services, to contract with a vendor(s) capable of managing the City’s portfolio of fixed-income investments.
Since 2016, the City has retained the services of two fixed-income money management firms to oversee the investment of the City’s reserve funds in accordance with the City’s investment policy and applicable state statutes. As of September 30, 2023, the combined value of the two portfolios was $181.3 million. These funds are commonly referred to as reserve funds, for which the City has no immediate need to spend. They are allocated across some 39 budgetary funds, including governmental operating funds, enterprise funds, and various special funds.
DISCUSSION:
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Advertisement Date: |
July 28, 2023 |
Notices Sent: |
232 |
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Opening Date: |
August 24, 2023 |
Planholders: |
53 |
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Proposals Received: |
15 |
Proposals were received from the following vendors:
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Allspring Global Investments |
Federated Hermes |
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First Midwest Bank |
Fort Washington Investment Advisors |
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Galliard Capital Management |
Garcia, Hamiliton & Associates |
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Great Lakes Advisors |
Income Research and Management |
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Loop Capital Asset Management |
Mesirow Financial Investment Management |
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Metlife Investment Management |
NuVeen |
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PFM Asset Management LLC |
PMA Financial Network |
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Ramirez Asset Management |
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A selection team comprised of staff from the Finance Department and Marquette Associates, the City’s investment advisor, evaluated the responses, which were scored based on the criteria set forth in the RFP:
1. Capability, Capacity and Qualifications of the Firm (30%)
2. Suitability and Quality of the Approach/Methodology (25%)
3. Milestones and Deliverables (15%)
4. Outcomes to be Achieved (30%)
After reviewing and scoring the proposals, the selection committee invited the top five vendors, Fort Washington Investment Advisors, Loop Capital Asset Management, Mesirow, PFM Asset Management, and PMA Financial Network, to attend interviews. Two members of the Financial Advisory Board participated in the interviews and provided valuable technical expertise on the subject matter. Following the completion of the interviews, the selection committee rescored the vendors. The vendors with the highest qualification score, Mesirow and PFM Asset Management, are recommended for an award. The table below provides a summary of the final qualification scores:
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Vendor |
Qualification Score |
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Mesirow |
91 |
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PFM Asset Management |
88 |
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Loop Capital Asset Management |
82 |
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Fort Washington Investment Advisors |
77 |
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PMA Financial Network |
75 |
PFM has provided fixed-income investment management services to the City since 2016. PFM has been an excellent partner and achieved solid returns at a low cost. The firm played a key role in revising the City’s investment policy in 2017, which diversified the allowable investments while maintaining a high level of security. During the pandemic, PFM ensured that funds remained liquid and worked with staff to quickly address a short-term cash flow need in early 2021. PFM’s proposed fee structure detailed below is highly competitive when compared to other proposers and the industry average.
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Assets Under Management |
Annual Fee |
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First $50 million |
10 basis points (0.10%) |
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Next $50 million |
8 basis points (0.08%) |
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Next $100 million |
6 basis points (0.06%) |
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Next $100 million |
5 basis points (0.05%) |
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Assets over $300 million |
4 basis points (0.04%) |
Mesirow is a well-known financial management firm based in Chicago. They offered a strong proposal that conveyed a deep understanding of the City’s investment goals and demonstrated an ability to achieve strong performance. Marquette Associates has significant experience working with Mesirow and advised that they are highly qualified and maintain an investment philosophy that complements that of PFM. Mesirow proposed one of the most attractive fee structures among proposing firms, as detailed below.
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Assets Under ManagementAnnual Fee |
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First $50 million |
7.5 basis points (0.075%) |
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Assets over $50 million |
5 basis points (0.05%) |
Staffed discussed the outcomes of the RFP with the Financial Advisory Board on October 30, 2023. The Board reviewed the merits of maintaining two investment accounts managed by separate vendors and agreed that the two-vendor structure is most beneficial to the City as it offers a higher level of safety while still leveraging the lower cost offered by each vendor under the tiered fee structure. The Board recommended moving forward with the award of services to Mesirow and PFM.
The term of the contract is five years from execution of a Consultant Services Agreement to December 31, 2028, with five, one-year options to extend.
Staff will work with Marquette Associates to transition the investment portfolio currently managed by Loop Capital to Mesirow. Funds currently invested with PFM will remain with the firm and require no action.
FISCAL IMPACT:
CIP#: N/A
Money manager fees are expensed to Financial Services accounts across various funds. Fees are allocated based on the average monthly balance in each fund. The proposed 2024 budget for money manager fees is based on the existing fee structure and includes $209,057. The estimated 2024 fees under this award are $147,965, which is less than the amount budgeted. Future years of this award will be budgeted based on the agreed-upon fee structure and estimated balance of invested funds at that time. Staff estimates that the new fee structures will result in savings of $84,000 per year or $420,000 over five years, depending on the value of investments.
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Account Number |
Fund Description |
Total Budget Amount |
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1510****-531304 |
Various |
$209,057 |