DATE:

October 28, 2008

BOARD MEETING DATE:

November 4, 2008

SPECIAL NOTICE/HEARING:

None

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

Finance and Operations Committee

SUBJECT:

Investment Advisory Services – Request for Proposals

RECOMMENDATION:

Adopt a Resolution authorizing the County Manager or his designee to issue a Request for Proposals (RFP) for Investment Advisory Services.

VISION ALIGNMENT:

Commitment: Responsive, effective and collaborative government.

Goal 20: Government decisions are based on careful consideration of future impact, rather than temporary relief or immediate gain.

Conducting a Request for Proposals (RFP) process contributes to this commitment and goal by providing an open and competitive process in the selection of qualified firms that will provide an independent perspective with regard to events that led to the decisions to invest in and hold Lehman securities in the County Investment Pool, assist the County and pool participants in revising and incorporating best practices in the Investment Policy, and assist the Treasury Oversight Committee and Treasurer in monitoring ongoing investments.

BACKGROUND:

On September 15, 2008, Lehman Brothers Holdings, Inc. filed for bankruptcy in the United States Bankruptcy Court in New York. On this date, the County Investment Pool held 5.9% or approximately $155 million of its value in Lehman securities. The $155 million loss has been distributed among pool participants as of September 30, 2008, in accordance with the Investment Policy. The Board has retained the law firm of Nixon Peabody LLP in connection with the Lehman bankruptcy proceedings, is pursuing recovery of funds from the Emergency Economic Stabilization Act of 2008, and has recently decided to file a lawsuit against Lehman Brothers for misleading investors about its financial health prior to filing for bankruptcy.

The Board’s Finance and Operations Committee has initiated a comprehensive process of reviewing and revising the County’s Investment Policy in order to minimize risks, create greater diversification and improve the safety and stability of pooled funds. The Committee has proposed two major revisions to the current Investment Policy. The first would limit amounts invested with each issuer for certain types of securities. The second is to contract with a third party investment advisor to review input from pool participants and assist with making improvements to the Investment Policy and ongoing monitoring of investments.

An important part of this process is to obtain input from all Investment Pool participants. The Committee will discuss these proposed revisions and obtain input at its November 4 meeting. Any revisions to the Investment Policy recommended by the Committee will be referred to the full Board of Supervisors for final approval.

DISCUSSION:

At its October 21, 2008 meeting, the Board requested that the Treasurer respond to questions regarding the County Investment Pool and the investment loss related to Lehman Brothers, at the Board’s November 4 meeting.

In addition to assisting with revisions to the Investment Policy and ongoing monitoring of investments, a third party investment advisor will also be requested to prepare a report and present findings to the Board of Supervisors regarding County Investment Pool decisions leading up to the Lehman bankruptcy. A Request for Proposals (RFP) has been prepared inviting proposals from qualified investment advisory firms to:

1.

Review the events and analyses that led to the decisions to invest in and hold Lehman securities in the County Investment Pool, and determine whether investments were at all times in conformance with the Investment Policy;

2.

Assist in revising and incorporating best practices in the current Investment Policy and thereafter annually review and recommend changes to the Investment Policy; and

3.

Assist the Treasurer and the Treasury Oversight Committee in monitoring ongoing investments. Specifically, the investment advisor(s) would assist the Treasury Oversight Committee in carrying out its statutory role of evaluating general strategies and monitoring pool investment results, economic outlook, portfolio diversification, maturity structure and potential risks to the funds. The investment advisor would review monthly investment reports and participate in Treasury Oversight Committee meetings. In addition, the investment advisor would consult directly with the County Treasurer and Assistant County Treasurer on individual investment decisions. The investment advisor would provide an independent perspective.

A County Investment Policy Workgroup with representatives from school districts, cities, county and Treasury Oversight Committee will review proposals and recommend a firm(s) to the Board Finance and Operations Committee. The workgroup will also contribute proposed policy revisions toward improvement of the County Investment Policy.

FISCAL IMPACT:

There is no fiscal impact associated with issuance of the RFP.